Lo v Huang [2020] QCA 97

SUPREME COURT OF QUEENSLAND

CITATION: Lo v Huang [2020] QCA 97

PARTIES: PEIYI LO / (appellant) / v / ROBERT YONG CONG HUANG / (respondent)

FILE NO/S: Appeal No 7367 of 2019 / DC No 2821 of 2017

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: District Court at Brisbane – [2019] QDC 61 (Jarro DCJ)

DELIVERED ON: 8 May 2020

DELIVERED AT: Brisbane

HEARING DATE: 30 October 2019

JUDGES: Fraser JA, Henry and Brown JJ

ORDERS: Appeal allowed.The parties are to submit draft orders for the Court’s consideration within fourteen days of the date of publishing these reasons.

CATCHWORDS: REAL PROPERTY – TORRENS TITLE – MORTGAGES, CHARGES AND ENCUMBRANCES – EQUITABLE MORTGAGES – HOW CREATED – OTHER CASES – where the appellant owned a one-fifth share in a property at Toorbul and the respondent owned the remaining four-fifths share in the same property – where the appellant made a payment, pending settlement, for a one-fifth share in a property at Parkinson – where the parties entered into a deed – where the operative part of the deed related to indemnity – where the recitals to the deed stated the respondent provided their four-fifths share in the Toorbul property as security for the appellants payment regarding the Parkinson property – whether the recitals in the deed recorded a concluded and binding agreement in relation to the security provided by the respondent – whether the appellant had an equitable mortgage over the Toorbul property / Property Law Act 1974 (Qld), s 11, s 59 / Allen’s Asphalt Pty Ltd v SPM Group Pty Ltd [2010] 1 Qd R 202; [2009] QCA 134, cited / Duff v Blinco & Anor (No 2) [2007] 1 Qd R 407; [2006] QCA 497, considered / English Scotland and Australia Bank Ltd v Phillips (1937) 57 CLR 302; [1937] HCA 6, considered / Farrall v Hilditch (1859) 5 CB(NS) 840; [1859] EngR 331, considered / Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; (2009) NSWLR 603, cited / Lexi Holdings PLC v Stainforth [2006] EWCA Civ 988, considered / Rava v Logan Wines [2007] NSWCA 62, considered

COUNSEL: S Anderson for the appellant / B Vass for the respondent

SOLICITORS: Cathay Lawyers for the appellant / Mills Oakley for the respondent

1. FRASER JA: I agree with the reasons for judgment of Brown J and the orders proposed by her Honour.

2. HENRY J: I agree with the reasons of Brown J and the orders proposed by her Honour.

3. BROWN J: Mrs Peiyi Lo (the Appellant) commenced proceedings against Mr Robert Huang (the Respondent) in the District Court of Queensland to recover $359,853.76,¹ said to be secured by an equitable mortgage over a property at Lot 104 Hume Road, Toorbul (Toorbul Property), owned by the Respondent. The Appellant also claimed $11,613.80 as net rental income from the Respondent. The learned trial judge found there was no equitable mortgage securing repayment of the amount in question. The question to be determined upon this appeal is whether there was such an equitable mortgage over the Toorbul Property.

Background Facts

4. Relevant to this appeal, the matters in issue at the trial were whether there was a security agreement in respect of the Toorbul Property and whether there was an oral investment agreement. As the matter of the rent claimed by the Appellant, in respect of which the learned trial judge ordered an account to be taken, is not the subject of this appeal, I will not outline the facts in relation to it.

5. A number of facts were uncontroversial at trial.

6. The appellant agreed to purchase a one-fifth share in a property located at 2939 Beaudesert Road, Parkinson (Parkinson Property) for $500,000 from United Communications Network Pty Ltd (UCN).² The Respondent was the sole director and shareholder of UCN. Negotiations relevantly took place between the Respondent and the Appellant’s husband, Mr Lo, who acted as the Appellant’s agent. The Appellant agreed, on 31 May 2005, to pay the Respondent $499,999, in advance of settlement of the Parkinson Property. The Parkinson Property was subject to a mortgage in favour of the ANZ Bank and UCN was the mortgagor.

7. The Appellant contends that, on 31 May 2005, the Respondent had agreed to:(a)provide her with security over the Respondent’s four-fifths share in the Toorbul Property for her payment of $499,999³ until the settlement of the Parkinson Property (Security Agreement); and(b)indemnify her in respect of any liability arising out of the mortgage over the Parkinson Property (Indemnity Agreement).

8. It is not in issue that a deed was entered into between the Appellant and the Respondent on 31 May 2005 (the Deed). The Deed was signed by each of them personally and also by the Respondent on behalf of UCN.⁴ The Deed referred to the Security Agreement in Recital H and the Indemnity Agreement in respect of the Parkinson Property in the operative terms of the Deed.

9. The parties entered into the Deed, which included the following provisions in the recitals:⁵

“WHEREAS

A. UCN is the current registered proprietor of the whole of land known as 2939 Beaudesert Road, Parkinson in the State of Queensland (the land).

B. UCN has a mortgage over the land in favour of Australian and New Zealand Bank Ltd (the mortgage).

C. Brisbane City Council has issued a Notice of Intention to resume the land and UCN is against the full resumption and has brought the council to the Supreme Court of Queensland.

D. UCN has agreed to sell to Lo and Lo has agreed to purchase 20/100th share in the land from UCN for $500,000.00 pursuant to an agreement for sale dated the same date as this deed.

E. UCN has agreed to extend the settlement date until 3 July 2006 and Lo has agreed to pay the 20/100th share expenses incurred and or paid by UCN from 1 January 2005.

F. Lo has agreed to pay $499,999.00 to any bank account nominated by UCN within 5 working days from the date of this deed. The balance $1.00 is payable on settlement.

G. Huang is the sole director of UCN. Huang owns 80/100th share in Lot 104 Hume Road, Toorbul in the State of Queensland (the security).

H. Huang has agreed to give the 80/100th share in Lot 104 Hume Road, Toorbul in the State of Queensland as security for Lo’s $499,999 payment before the settlement.

I. It is the intention of UCN to refinance the mortgage over the property simultaneously with the settlement of the sale to Lo of the said share in the land and Lo has agreed to permit UCN to register a mortgage on the land provided UCN remains solely responsible for repaying the loan and interest under the said mortgage.

J. UNC / Huang has agreed to indemnify Lo and keep Lo indemnified in respect to any action, claim for compensation, interest, costs and damages brought by the mortgagee of the land against Lo in respect of bleach [sic] of mortgage by UCN / Huang upon the terms set out in this Deed.

…”

10. The operative terms in the Deed related to the Parkinson Property, not the Toorbul Property. Those terms related solely to an indemnity to be given to the Appellant, by the Respondent and UCN, in relation to any liability arising from the mortgage of the Parkinson property.

11. Prior to entering the Deed and the Appellant agreeing to purchase the Parkinson Property, the Respondent informed the Appellant that Brisbane City Council had issued a resumption notice in respect of the Parkinson Property.⁶

12. At trial, the Respondent contended that he and the Appellant had also reached an oral agreement described as the “Investment Agreement” on 31 May 2005. The Investment Agreement is said to have involved the Appellant agreeing to invest $500,000 in the proposed development of the Parkinson Property by UCN. In consideration for that payment, UCN agreed that it would sell to the Appellant a one-fifth share in the Parkinson Property, and if the Parkinson Property was sold, the Appellant would receive one-fifth of the net proceeds of sale. The Respondent contended that the Investment Agreement contained a condition that the Appellant would not be entitled to recover any part of her $500,000 investment if the Parkinson Property was resumed by the Brisbane City Council.⁷

13. An REIQ contract of sale was subsequently entered into on 17 June 2005 between the Appellant and UCN to transfer the one-fifth interest in the Parkinson Property for the sum of $500,000. It identifies the deposit paid as $499,999 with the balance of $1 to be paid on settlement. Settlement was to occur on 3 July 2006.

14. The REIQ contract contained a condition disclosing that the Brisbane City Council had issued a notice of intention to resume the property and that the Appellant agreed not to make any requisition demand or claim for compensation in respect of that matter (Special Condition 1).

15. Settlement did not occur on 3 July 2006 because the Parkinson Property was resumed by the Brisbane City Council in September 2005.

16. The Toorbul Property was sold by a statutory trustee on 19 May 2018 and the net proceeds of sale was $411,183.37. That money is held in an account pending the outcome of these proceedings. The Appellant was paid $74,424.41 which represented her one-fifth share of the net proceeds of sale after the trustee’s fees were paid.

17. In 2010 and 2011, the Appellant was repaid part of the deposit in the sum of $140,145.24 by the Respondent. She was not paid the balance of the $499,999 deposit. The amount of $359,853.76 sought by the plaintiff is the balance of a sum of $499,999.

Trial Judge’s findings

18. The Appellant, her husband (Mr Lo) and the Respondent gave evidence at the trial.

19. The learned trial judge rejected the Respondent’s assertion that on 31 May 2005, the parties agreed to the alleged Investment Agreement. His Honour stated he was not persuaded by the Respondent’s evidence about that matter and instead accepted the evidence given by the Appellant and her husband, who both denied that Mr Lo, on behalf of the Appellant, entered into the Investment Agreement.⁹ The Respondent does not challenge that finding.

20. In considering whether there was a Security Agreement giving rise to an equitable mortgage in favour of the Appellant, His Honour particularly considered the effect of Recitals F, G and H in the Deed. His Honour was not satisfied that a Security Agreement existed, as was submitted by the Appellant, which gave rise to an equitable mortgage, pursuant to which she was entitled to be paid the amount claimed from the sale of the Toorbul Property.¹⁰ His Honour was not persuaded that there was a Security Agreement for a number of reasons:(a)The operative terms of the Deed were clear and unambiguous and the Recitals were not required to interpret the terms of the Deed. His Honour considered that the operative terms related to the Respondent’s agreement to indemnify the Appellant in respect of the mortgage over the Parkinson Property in the event that the mortgagee made a demand or a claim against the Appellant as one-fifth owner. When the deed is read as a whole, his Honour considered that the subject matter of the deed was the agreement to indemnify the Appellant in such circumstances;¹¹(b)His Honour rejected the Appellant’s argument that the Recitals gave rise to an entitlement to the amount claimed by creating, in the Respondent’s four-fifth's share of the Toorbul Property, the interest as pleaded by the Appellant. His Honour found that the Recitals were not operative terms;¹²(c)His Honour found that any action that the Appellant had related to the Security Agreement, the terms of which were not pleaded¹³ and which did not properly come within the operative terms of the Deed. His Honour stated that, although the Security Agreement was loosely referred to in the Recitals, it was the security itself and not the Recitals of the Deed which permitted the Appellant to claim the entitlement she was seeking. His Honour was not prepared to make an order regarding the effect of the Security Agreement based on the Recitals;(d)His Honour also found that there were matters of uncertainty surrounding the terms of the Security Agreement, such as when and how the security could be called upon, including whether there were any relevant preconditions, how the Security Agreement was formed, whether it was written or oral, what its terms were and what it required the Respondent to do. His Honour stated that it was uncertain from the Recitals whether the Respondent had already given the security or whether it was no more than an offer;(e)His Honour found that, given Recital H was not in the operative part of the agreement, there was no agreement in respect of the matters set out in Recital H. In his Honour’s view, Recital H could only be considered to be a reference to the Security Agreement but not the final, complete and binding Security Agreement. His Honour placed some reliance on the fact that there were factual errors in Recital D, which referred to a contract of sale for the Parkinson Property of the same date as the Deed, when the contract of sale was in fact dated 17 June 2005. His Honour also stated that the security offered was ambiguous, such that he formed the view that the language of the Recitals is insufficient to conclude a valid and enforceable Security Agreement; and(f)No reference was made to entering into any Security Agreement on 31 May 2005. The only pleaded agreements entered into that day were the Parkinson Property Contract of Sale and the Deed. No covenant or estoppel was pleaded in paragraph 12 of the Further Amended Statement of Claim in respect of the Security Agreement.

Grounds of appeal

21. The appellant raises six grounds of appeal:(a)In light of having rejected the Respondent’s evidence about the existence of an Investment Agreement his Honour failed to: (i)find that a Security Agreement existed between the Appellant and Respondent;(ii)find that Recitals F, G and H of the Deed recorded the terms of that agreement; and(iii)find that in the absence of a denial by the Respondent of the Security Agreement as pleaded by the Appellant, that the Security Agreement existed. (Ground 1)(b)That his Honour erred in failing to find that the agreement recorded in the Deed created an equitable interest in favour of the Appellant over the Respondent’s four-fifths share of the Toorbul Property. (Ground 2)(c)That his Honour failed to find that, in the absence of the denial of the existence of the Security Agreement in the pleadings, the Appellant was not required to lead, and in fact was precluded from leading, evidence about the fact of the agreement and its formation because it was deemed to be admitted on the pleadings. Further, his Honour erred in finding that the terms of the Security Agreement were not pleaded. (Grounds 3 and 4)(d)That his Honour erred by finding, at [45] of his reasons, that the terms of the Security Agreement were uncertain. (Ground 5)(e)That his Honour erred in finding that the language of the recitals is insufficient to conclude a binding and enforceable Security Agreement. (Ground 6)

22. On behalf of the Respondent, it is contended that it was open to his Honour to make the findings he did on the basis that:(a)The existence of the Investment Agreement was separate from the existence of the Security Agreement, which the Respondent had denied;(b)The Security Agreement was referred to “loosely” and ambiguously in the recitals to the Deed;(c)No other evidence was led in the Appellant’s case about the alleged Security Agreement;(d)There was no pleading of the circumstances said to give rise to the formation of the alleged Security Agreement;(e)It was open to the learned trial judge to find that the Recitals did not form part of the operative terms of the Deed. It was the Security Agreement itself, not the Recitals, which permitted the Appellant to claim the relief sought;(f)There were several matters of uncertainty surrounding the terms of the Security Agreement; and(g)The language of the Recitals was insufficient to find a binding and enforceable Security Agreement.

Ground 1 of the Appeal

23. Ground 1 of the Appeal raises two matters for consideration:(a)whether the Appellant sufficiently raised, in its pleadings and at trial, that the Recitals were a record or memoranda of the Security Agreement that had already been agreed; and(b)Whether His Honour erred in not finding that the Security Agreement existed when he found that there was no Investment Agreement agreed between the parties.

24. Both issues require consideration of the pleadings, opening and the conduct of the trial.

25. Paragraph 12 of the Further Amended Statement of Claim pleaded that:

“By the 31 May Deed:

(a)the Defendant agreed to indemnify the Plaintiff in respect of any liability arising from their mortgage of the Parkinson Property, including liability for costs or expenses incurred by the Plaintiff in defending any proceedings relating to the mortgage;

(b)the Plaintiff and Defendant recorded an agreement by which the Defendant would provide to the Plaintiff as security for the payment by the Plaintiff of $499,999.00 prior to settlement, the Defendant’s four-fifths share in the Toorbul Property.” (emphasis added)

26. Further paragraph 17(d) alleged that:

“the Plaintiff has an interest in a four-fifth share of the Toorbul property to the value of $499,999.00 on the basis of the security for that amount that the Defendant gave in favour of the Plaintiff prior to settlement occurring” (emphasis added)

27. In the course of the opening by the Appellant, her counsel stated, in an exchange with the learned trial judge, that the issue was not a contractual issue, but rather:¹⁸

“It is with respect to a deed… a deed not being a contract, this deed – it is admitted to be a deed, and, therefore, the security that was memorialised in that deed …”

28. Further, the Appellant’s counsel stated in her opening:¹⁹

“… What the Plaintiff says is that the agreements were memorialised in the 31 May deed and in the Parkinson contract…”

29. The reference to the agreement being memorialised is consistent with a case that an oral agreement was reached between the Appellant and the Respondent, and the Deed was a record of that agreement. That is language consistent with the notion that it was a note or memorandum of the agreement sufficient to satisfy s 11 or s 59 of the Property Law Act 1974 (Qld) (PLA).

30. In the cross-examination of the Respondent, the following exchange took place in relation to the Deed:²⁰

“And in the recitals it records the background to that, doesn’t it? --- Yeah.

And it records agreements that you came to on the 31st of May 2005, doesn’t it? --- Yeah”

31. Further, in cross-examination the appellant’s counsel asked as follows:²¹

“Mr Huang, can I ask you to look at exhibit 2²² that you have in front of you there. Now, that document records in the recitals of A to J ---? --- Yeah

---it records the agreement that you made with Mr Lo on Mrs Lo’s behalf on the 31st of May 2005? … Yeah…”

32. His Honour, in his Reasons, set out a detailed passage of the Respondent’s cross-examination which included the following:²³

“MS ANDERSON: One of the things that you and Mr Lo reached agreement about on the 31st of May 2005, was that Mrs Lo would have security for her payment of $499,999, and that security would be your 80 per cent interest of – in the Toorbul property. That’s right, isn’t it?--- That security, I can say yes. But I can say more.

Right. So the answer is yes?--- Okay. But, I can say more.

All right. And you’d like to say more about that?--- Yeah. I want to say more.

Go ahead, Mr Huang. Go ahead?--- Yeah. Because I, in the very beginning, I offered this as security to him. One is for the ANZ mortgage. The second is for the 100,000 deposit he paid. I want him to get more time to do his due diligence, to do a assessment. So – and this why, after we do in the whole case, you know, on 12th of August 2005 I asked him, “Is this [indistinct] going ahead?” Okay? Or – or you want to get out of this investment agreement? He said to me, “I need to talk to my wife and Mr Ma.” And then he come back to me with the 300,000 cheque. So to my understanding he’s full commit in my security, or will he forfeit its duty.

Sorry. Your security is what?--- My – my – my security not to – I said to him, okay. Not to Mrs Lo. Is already forfeited because he make up his mind still want to go ahead, and to pay me the full amount, 400,000, because we realised we could not settle then. We could not settle then, consequent to [indistinct] them fully. So we – we can – we can do a [indistinct] for. We have settlement. You have the full 300 per cent pay and 100 per cent [indistinct] settlement, or you just - - -

Sorry. I can’t understand what you’re saying. Say that again?--- I asked him to forfeit investment agreement by 10 in 100 per cent what he can get out of contract. He can get out of investment agreement.”

Well, on the 12th of August, when you asked Mr Lo if he would - - -?---After – after 12 August. Yeah.

When you asked Mr Lo if he wanted to continue with the contract?--- No, no. The investment agreement.

Well, you see, there’s a contract for sale of the Parkinson property of 20 per cent. Correct?---I didn’t want to realise it.

If you could just answer my question, Mr Huang. There’s a contract for sale of 20 per cent of the Parkinson property. Correct?---Yes.

And the deposit that Mrs Lo is required to pay under the Parkinson sale contract, is $499,999. Correct?--- After the 12th of August, was Mr Lo and me. We fully understand the contract, it has been void. It’s impossible. The only thing that [indistinct] is joint venture agreement, joint investment agreement. So I asked him, “Are you serious? Are you still going ahead?”

Mr Huang, the security that you offered to Mrs Lo was for the full amount of $499,999. Correct? Correct?--- Whatever I’ve got in – in here.

In the May deed at H?--- Yeah.

That’s what it says. Yes. So when you had the conversation after the 12th of August with Mr Lo, you told him, “I need the $300,000 to continue this buy”, didn’t you?---I said, “I need the money.” I also said, “Are you sure you still want to go ahead?”

And you said, “There’s nothing for you to lose. There’s no risk because you’ve still got the security over the Toorbul property.” Correct?--- No. I did not say that.

Because, in fact, the agreement that – where you offered the security over the Toorbul property, was still in place. It didn’t end because the property had been resumed, did it?--- Up to the 12th of August the [indistinct] [indistinct] had been [indistinct]. But there is no way we can transfer the 20 per cent of the shares of them to Mrs Lo. And so I – I asked him that, you still want to go ahead with the investment agreement? That means we might have enough fighting for compensation for [indistinct]. We might get more money than we pay. We might get less money than we pay. And he said he needed to check with his wife and Mr Ma. ….” (emphasis added)

33. In further cross-examination, the Respondent stated that the Recitals of the Deed recorded an agreement that he had reached with Mr Lo on 31 May 2005.²⁴ He stated that the Recitals were background, and then agreed that what was recorded as background is the agreement that he had reached with Mr Lo on 31 May 2005.²⁵

34. The Respondent has strongly argued that no case was pleaded that there was an oral agreement which was subsequently recorded in the Deed, nor that by the Recitals in the Deed, the Respondent had agreed to provide the Appellant security. The Appellant argued that its case was not that the Deed was the Security Agreement, rather that the Deed recorded the Security Agreement and that that was sufficiently pleaded and raised at trial. The Appellant further contended that the Security Agreement was not denied in the Defence, other than by contending it was superseded by the Investment Agreement. The Appellant contends that the Appellant rebutted that case and if there was no Investment Agreement, as his Honour found, the Security Agreement was deemed to be admitted. In those circumstances, the Appellant contended that she was not permitted to lead evidence from the Lo’s as to the entry into the Security Agreement.

35. The Respondent’s contention that the Appellant failed to plead that, by the Deed and particularly Recitals F, G and H, the Respondent had agreed to provide security to the Appellant and that there was no pleading of an oral agreement are plainly correct. However, the Appellant’s case relying on the Recitals in the Deed as recording the Security Agreement was raised by the Amended Statement of Claim. While paragraph 12 of the Further Amended Statement of Claim²⁶ was not pleaded with the precision one would expect, nor was it properly particularised, it did raise two allegations in relation to the Deed:(c)First, that by the Deed, the Respondent agreed to indemnify the Appellant in respect of any liability arising out of the mortgage over the Parkinson Property; and(d)Secondly, that the Deed recorded an agreement by which the Respondent would provide to the Appellant, as security for the payment by the Appellant of $499,999 until settlement of the Parkinson Property, his four-fifths share in the Toorbul Property.

36. The Appellant further pleaded paragraph 17(d) of the Further Amended Statement of Claim that the Appellant had an equitable interest in the four-fifths share of the Toorbul Property, which clearly relied on the interest having been recorded in writing in the Deed as pleaded in [12(b)] of the Further Amended Statement of Claim.

Ground 2 of the Appeal

50. In order to determine Ground 2 of the Appeal, this Court must determine whether or not:(a)His Honour erred in finding that there was no Security Agreement between the Appellant and the Respondent;(b)If a Security Agreement did exist, was it sufficiently recorded in writing in the Recitals of the Deed to create an equitable mortgage?

51. His Honour provided careful and detailed reasons in determining that he was not satisfied that a Security Agreement existed, which would have given rise to an equitable charge or mortgage.³⁰ In reaching that conclusion, his Honour particularly focussed on the lack of pleading with respect to the Security Agreement and whether the Recitals themselves could be regarded as constituting the Security Agreement itself. This is evident from paragraph 44 of his Honour’s reasons where his Honour stated:

“Furthermore whilst there is an indication of an existence of a security in recital H, it is the security itself and not the recitals of the 31 May Deed which permit Mrs Lo to the entitlement she seeks. In other words, it is the terms of the “security agreement” and not the recital’s component to the 31 May Deed which properly enable Mrs Lo to obtain the relief sought. The terms of the “security agreement” were not pleaded and I am unprepared to make an order regarding the effect of the security when it appears loosely in recitals as opposed to the operative part of the deed.”

52. His Honour was correct that the entry into, and the terms of, the Security Agreement had not been pleaded, that the Security Agreement was not contained in the Recitals and that the Recitals did not constitute a Security Agreement. However, while his Honour had averted to the Appellant’s case that the Deed recorded or memorialised the Security agreement, he did not specifically address that issue. In particular, his Honour did not consider whether the Recitals and the evidence presented at the trial particularly that of the Respondent, established that there was a Security Agreement. Nor whether the Deed was a sufficient record in writing of such an agreement in order to create an equitable interest. Such a consideration cannot be implied from the reasons. As is evident from the discussion in relation to Ground One of the Appeal that was a matter raised by the Appellant as part of its case and in failing to consider it, his Honour was in error.

53. It therefore falls on this Court to do so given that the nature of the evidence relevant to the consideration does not require an assessment of credit and this court is in as good a position to determine the matter as the learned primary judge.

54. His Honour’s error in this regard had two flow-on consequences in relation to the role of the Recitals in the Deed and the evidence at the trial.

55. His Honour correctly set out the guiding principles in relation to Recitals, including the circumstances in which they can be treated as having an operative effect, particularly referring to Franklins Pty Ltd v Metcash Trading Ltd (Franklins).³¹

56. His Honour correctly recognised that the Recitals in F-H did not relate to, and could not affect, the interpretation of the operative terms of the Deed, which related to the Indemnity Agreement.

57. The Respondent contends that the Recitals were only background information to the Indemnity Agreement and had no bearing on the operative terms of the Deed or any operative effect.³² The Respondent emphasised that in setting out the principles with respect to determining the legal significance of recitals, Campbell JA in Franklins warned that the court will be cautious in finding a covenant in a recital because that is not the part of the agreement where covenants are usually expressed. The Respondent further contended that no evidence was led from the Appellant’s witnesses supporting the existence of a Security Agreement.

58. It is true that Recitals F-H dealt with a different subject matter from the operative terms of the Deed and did not relate to, or provide a context within which, the operative terms of the Deed should be construed. It is plain from the terms of Recitals F-H that they do not purport to provide background information to the operative terms of the Deed. Recitals F-H relate to the sale and security of the Parkinson Property, whereas the operative terms relate to the ANZ mortgage already existing over the Parkinson Property and the provision of indemnity to the Appellant in relation to any action taken under the mortgage. However, that does not mean that they were simply irrelevant, nor that they could have no operative effect.

“Because of this variety of recitals, and because the task of the court is to interpret the particular document that is in dispute, statements in cases to the effect that recitals should always be treated in some particular way in construction of an agreement should be treated with caution, and as subject to the context in which they were uttered.”

60. As a result of his Honour only considering whether the Recitals themselves constituted the Security Agreement, his Honour did not consider whether Recitals F-H were a record of the Security Agreement and were themselves evidence of the existence of a Security Agreement. As was submitted by the Appellant, it has been accepted that recitals can be an admission by the parties, or party responsible for creating the statement in the Deed, of the truth of the matter stated under the general laws of evidence.³⁴

61. The terms of the Recitals do record the Security Agreement identifying the parties, the security given, the payment to be made in advance for which the security is given and the period for which it is provided. The terminology reflects what the Appellant and Respondent had “agreed” to.

62. The Recitals identify that the security is given in relation to the $499,999, which the Appellant agreed to pay within five working days of the date of the Deed, with $1 to be paid on settlement. The settlement is identified in the earlier Recitals as being with respect to the Parkinson Property in Recitals A, D and E. The parties are identified in Recitals F-H, as is the relationship of the Respondent to UCN, namely that he is the sole director of UCN. UCN is the vendor of the Parkinson Property. The Toorbul Property, which is the subject of the security, is identified in Recital G. Recital G also identified that the Respondent owns four-fifths of the Toorbul property. Recital H records that the Respondent had agreed to provide his four-fifths share in the Toorbul Property as security for the $499,999 payment of the Appellant. The Deed had been entered into and executed by the Appellant and the Respondent. The Recitals provide evidence of the fact that the Respondent agreed to give the Appellant security over the Toorbul Property to secure the payment by the Appellant of $499,999 to UCN pending settlement of the Contract of Sale of the Parkinson Property.

63. Moreover, the evidence at trial supported that it was, in fact, the Respondent who reduced the Deed into writing.25 In the circumstances, the Recitals could be treated as an admission by the Respondent of the truth of the matters contained therein and as evidence of the existence of the Security Agreement.

64. While, as contended by the Respondent, the Appellant did not lead evidence of the oral Security Agreement, which was then subsequently recorded in Recitals F-H of the Deed from the Appellant and her husband, the Respondent’s own evidence filled that hole in the Appellant’s case. The Respondent admitted in the course of his evidence that he and the Appellant’s husband Mr Lo had, on 31 May 2005, reached agreement that he would provide security over the Toorbul property for the $499,999 that the Appellant agreed to pay in advance of the settlement of the Parkinson Property.

“In accordance with what is known as the doctrine in Walsh v Lonsdale, an agreement for consideration to execute a mortgage or charge over certain property when required creates an equitable mortgage or charge. The applicable equitable principle or maxim is that "equity looks on that as done which ought to be done." Whether those words create a charge over the appellant's land depends on determining the intention of the parties. That intention is to be determined objectively by reference to "what a reasonable person would have understood [the words] to mean". And to ascertain that "normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction". Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract. It is appropriate also to refer to the following often quoted observations of Romer J in Cradock v Scottish Provident Institution:

"To constitute a charge in equity by deed or writing it is not necessary that any general words of charge should be used. It is sufficient if the court can fairly gather from the instrument an intention by the parties that the property there referred to should constitute a security."”

(footnotes omitted)

71. Based on the findings made above, the Security Agreement was an oral agreement that was subsequently recorded in the Recitals of the Deed. The language is sufficient to record a binding agreement between the parties. It is an agreement to give security over the Toorbul property in respect of the $499,999 payment by the Appellant, which creates an equitable mortgage or charge.³⁸ Given that “equity looks on that as done which ought to be done” and that the intention of the parties was clearly to provide the Appellant with security over the Toorbul Property in respect of the $499,999 paid by the Appellant in advance of settlement, until settlement of the Parkinson Property occurred, it was sufficient to create an equitable mortgage over the Toorbul land.

72. In order for an equitable interest to be created in the Toorbul Property, based on the security granted by the Respondent, the creation of the interest must be in writing in accordance with s 11 of the PLA or a note or memoranda within the terms of s 59 of the PLA.

73. Section 11(1)(a) of the PLA provides that:

“[N]o interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person’s agent lawfully authorised in writing, or by will or by operation of law.”

74. The Respondent at trial contended that there was no agreement in writing which created or disposed of any interest in land. Recitals F-H identify the land over which security is to be granted, the amount of the advance for which security is to be provided and that the Respondent had agreed to provide the Toorbul land as security.³⁹ The Appellant and the Respondent are parties to the Deed and the Respondent has executed the Deed. The Deed is sufficient to satisfy s 11(1)(a) PLA.⁴⁰

75. Even if construed as a contract for the disposition of an interest in land within the meaning of s 59 PLA,⁴¹ the preconditions would be satisfied. The content of the Recitals would be a sufficient note or memorandum of the agreement, which is signed by the Respondent, whose land is to be charged.

76. His Honour erred in finding that the Deed did not evidence the oral Security Agreement which resulted in the creation of an equitable interest in favour of the Appellant over the Respondent’s four-fifths share of the Toorbul property.

77. Ground 2 of the Appeal is established.

Ground 5 of the Appeal

78. Given the findings made above, it is evident that I consider the Recitals record the Security Agreement with sufficient certainty to constitute an equitable mortgage. I will deal with ground 5 of the Grounds of the Appeal only briefly.

79. His Honour stated that it was not clear from the Recitals whether the security had been given, or offered to be given, pending a concluded agreement, or what the terms of the security were, or when it can be called upon.

80. A mortgage does not need to contain express covenants, not even the covenant to pay.⁴² As is evident from the above discussion, the Recitals recorded sufficient details to create an equitable mortgage in the Toorbul property. The language was consistent with the recording of a Security Agreement.

81. Given that the security was in place pending settlement, the security could be called upon in the event that settlement did not occur, and the money repaid upon demand.

82. The other errors relied upon by the Respondent to suggest that the recitals were not accurate or reliable were not sufficient to create any uncertainty as to what had been agreed. For example, the reference to the error in Recital D that the Contract of Sale was dated the same day as the Deed, when the Contract of Sale was entered into on a later date, was not a matter which leaves any uncertainty. It is clear from the terms of Recital A that the Contract of Sale being referred to is the Contract of Sale for the Parkinson Property. The reference to “dated the same day” was an erroneous addition which would not vitiate the Deed,⁴³ particularly given the Respondent was the author of the Deed.⁴⁴

83. The terms of the Recitals were sufficiently certain to record a binding security agreement. Ground 5 of the Appeal is established.

Other Grounds of Appeal

84. The Appellant has succeeded in establishing grounds 1, 2 and 5 of her appeal. It is unnecessary to separately consider grounds 3, 4 and 6 as the issues raised by those grounds have largely been canvassed in the reasons provided above or it is unnecessary to do so.

85. The decision of the learned Trial Judge should be set aside insofar as it dismissed the claim of the Appellant in relation to the Security Agreement.

86. Given the Toorbul Property has been sold by the statutory trustees, and the amount of money sought is the balance owing from that already paid to the Appellant, the parties agreed that if the Appellant was successful, the appropriate relief was a declaration as to the fact the Appellant held an equitable mortgage over the Toorbul property and as to distribution of the proceeds. The parties agreed that they would provide a draft form of order to this Court in the event that the Appellant was successful. The parties are directed to provide a draft order within 14 days of the order setting aside his Honour’s decision.

87. As to the question of costs, given I have found that the Appellant sufficiently raised the case that the Recitals were a record of an agreement arising out of an oral agreement, the Respondent should have to pay the Appellant’s costs of the appeal. As to the trial costs, there appears no reason why the Appellant should not also be awarded her costs. Given, however, that the learned trial judge reserved the cost of the account and the proceeding, it is appropriate for his Honour to make a determination as to the appropriate order of costs in light of this determination, rather than this Court making any orders in relation to the trial.

Orders

88. The parties are to submit draft orders for the Court’s consideration within fourteen days of the date of publishing these reasons.

Footnotes

1. The amount was originally $359,854.67 but was later amended. ↩

2. UCN owned the Parkinson Property. ↩

3. The Appellant owned a one-fifth share in the Toorbul Property. ↩

4. ABII 137-139. ↩

5. ABII 137. ↩

6. Prior to 31 May 2005; Lo v Huang [2019] QDC 61 (Reasons) at [20]. ↩

7. But would be entitled to one-fifth of any compensation paid by the Brisbane City Council. ↩

8. The agreed price being $500,000 for the one-fifth share. The remaining $1 was to be paid upon settlement of the Parkinson Property. ↩

9. Reasons at [31]. ↩

10. Reasons at [49]. ↩

11. Reasons at [39]. ↩

12. Reasons at [41]. ↩

13. Reasons at [44]. ↩