Mathieson Nominees v Aero Developments & Ors [2016] VSC 131

Mathieson Nominees v Aero Developments & Ors [2016] VSC 131 - VSC 2016 case summary — Zoe

[55]

The Vendor is at the date hereof, the sole director and sole shareholder of Aero.
By agreement between VicUrban and Aero, the payment of the residue under the Contract was extended to 31 July 2009 ("Settlement Date") to enable Aero to take transfer of the Property from VicUrban on or before the Settlement Date.
Knight Jones & Associates Pty Ltd, and its principal, Michael Knight (together "Knight") have used their best endeavours to procure a loan to be secured by a 1st ranking mortgage over the Property ("1st Mortgage Loan") for the purpose of Aero taking transfer of the Property from VicUrban.
On the basis that the 1st Mortgage Loan was procured for an amount and on terms and conditions which Aero could prudently accept, interests associated with the Purchasers ("2nd Mortgage Lender") had agreed to lend $800,000 to Aero on the security of a 2nd Ranking Mortgage over the Property ("2nd Mortgage Loan") on terms and conditions set out in a Deed made between Tenuta, Aero and the Vendor a copy of which is annexed hereto.
Notwithstanding the best efforts of Knight to procure the 1st Mortgage Loan for an amount and on terms and conditions which Aero could prudently accept, such loan has not been able to be procured.
Aero failed to take a transfer of the Property from VicUrban on or before the Settlement Date and VicUrban has served a Rescission Notice ("Notice") on Aero (a copy of which is annexed to this Deed) which provides, inter alia, that unless Aero makes good the default specified in the notice within 14 days from the service of the Notice on Aero, VicUrban intends to exercise the rights set out in the Notice including the rescission of the Contract.
The Vendor and Sprint are concerned that if the Contract is rescinded due to the effect of the Notice, the deposit paid by Sprint under the Contract will be forfeited and VicUrban will be entitled to exercise its rights and remedies against Sprint as is set out in the Notice and otherwise according to law and against the Vendor pursuant to the Guarantee and Indemnity attached to the Contract and executed by him ("adverse consequences").
In order to avoid the adverse consequences, the Vendor and Sprint have requested the Purchasers to:-

[120]

A good description of the nature of a charge is to be found in the judgment of Atkin LJ in National Provincial and Union Bank of England v Charnley:

The first question that arises is whether or not this document does create a mortgage or charge, and to determine that it is necessary to form an idea of what is meant by a "charge". It is not necessary to give a formal definition of a charge, but I think there can be no doubt that where in a transaction for value both parties evince and intention that property, existing or future, shall be made available as security for the payment of a debt, and that the creditor shall have a present right to have it made available, there is a charge, even though the present legal title which is contemplated can only be enforced at some future date, and though the creditor gets no legal right of property, either absolute or special, or any legal right to possession, but only gets a right to have the security made available by an order of the Court. If those conditions exist I think there is a charge. If, on the other hand, the parties do not intend that there should be a present right to have the security made available, but only that there should be a right in the future by agreement, such as a licence, to seize the goods, there will be no charge.

Thus a charge (also sometimes termed a hypothecation) does not depend on either delivery of possession or the transfer of ownership, but represents an agreement between creditor and debtor by which a particular asset or class of assets is appropriated to the satisfaction of a debt, so that the creditor is entitled to look to the asset and its proceeds to discharge the indebtedness, in priority to the claims of unsecured creditors and junior incumbrancers. The charge does not transfer ownership to the creditor; it is merely an incumbrance, a weight hanging on the asset which travels into the hands of third parties other than a bona fide purchaser of the legal title for value and without notice.

[195]

The effect of s 40 is that no instrument until registered shall be effectual to create, vary, extinguish or pass any estate or interest in or over any land under the operation of the Act; but upon registration, the estate or interest shall be created, varied, extinguished or pass in the manner and subject to the conditions specified in the relevant instrument or in the Act.

Section 41 then proceeds to give effect to the proposition that a certificate issued by the Registrar of Titles pursuant to the Act shall be conclusive evidence of the title to which the certificate refers.

The section provides amongst other things, in effect, that the register shall be received in all courts as evidence of the particulars recorded in in and shall be conclusive evidence that the person named in the relevant folio as the proprietor or as having any estate or interest in the land is possessed of that estate or interest as described in the register.

Consistently with the scheme of the Act s 42 then provides, in effect that - notwithstanding the existence in any estate or interest which but for the Act might be held to be the paramount or have priority - the registered proprietor of land shall, except in the case of fraud or other specified instances, hold such land subject only to such encumbrances as are recorded on the relevant folio of the register and absolutely free from all other encumbrances.

...

By [s 43 of the Act] it is provided, in effect, that no person taking or proposing to take a transfer from or proposing to deal with the registered proprietor of any land shall be required or in any manner concerned to enquire of ascertain the circumstances or the consideration for which the property was registered.

More particularly the section also provides, in effect, that no person dealing with the registered proprietor shall be affected by notice, actual or constructive, of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not, of itself, be imputed as fraud.

[239]

In breach of his fiduciary duty to Sprint and his duty to its creditors Evans procured for the benefit of Aero a windfall to the detriment of Sprint and its creditors.

Particulars

(1) Evans caused Sprint to make the Nomination of Aero as purchaser under the Contract for no consideration, Sprint was thereby denied the benefits of the purchaser under the Contract.

(2) Prior to settlement that Vendor discounted the Contract price by $500,000 (from $4,500,000 to $4,000,000) and waived penalty interest.

(3) Aero settled the Contract on 17 September 2009 by payment of $3,775,000 (ex GST and stamp duty) to the Vendor, which along with the Deposit paid by Sprint satisfied the Contract.

(4) Evans had a valuation from Hay Property Group of $5,500,000 (ex GST) as at 20 March 2009 and again at 7 July 2009.

(5) Aero obtained a windfall under the Contract because the Land had increased in value and, following the Nomination, the windfall was available and not to Sprint but to Aero, for which no consideration was paid ("the Windfall").

(6) Evans had knowledge that Sprint was in a parlous financial position and that depriving Sprint of the Windfall would prejudice its creditors including Mathieson.

(7) On or about 1 July 2009 Ian Mathieson on behalf of Mathieson told Evans that Mathieson was ready willing and able to advance sufficient further funds to enable Sprint to settle under the Contract.

(8) On or about 1 July 2009 Evans told Ian Mathieson on behalf of Mathieson that Sprint would not need the offer of finance from Mathieson because it had made other arrangements, Evans did not disclose that Sprint was negotiating the Nomination, which Evans procured on 3 July 2009.

(9) Sprint entered into a deed dated 15 September 2009 with Riccardo Tenuta, Peter Plevritis, and Evans to, among other things, refund the Deposit to Sprint (clause 2.2.2). Evans has not taken any steps to procure Aero to refund the Deposit to Sprint.

(10) Aero knew about the matters set out in this paragraph because Evans was a director of Aero at all relevant times.

(11) At all relevant times Joe Katz, solicitor acted for both Sprint and Aero. Accordingly, the knowledge of the Charge in favour of Mathieson and the breaches by Evans of his fiduciary duty to Sprint can be attributed to Aero.

[300]

To accept such a position is, in my respectful opinion, effectively to deny the operation of a remedy which squarely falls within the in personam exception to indefeasibility, an exception which undoubtedly exists as a basis for indirect attack upon registration separate from the direct attack available by reliance upon statutory fraud. The approach accepts that, speaking generally, improper receipt of trust property can give rise to a constructive trust. But it says that, in the case of a dealing with trust property which is Torrens system land, recourse to imposition of such a trust is in part unnecessary; for dishonest receipt will constitute statutory fraud. Otherwise the possible scope of the remedy is denied application. The consequence of that approach is that the full range of operation of the particular remedy is emasculated. The proposition that an equity may be recognised and enforced so long as it involves no conflict with the indefeasibility provisions has not prevented the High Court from imposing constructive trusts so as to recognise equities in cases where the transfer of real property was effected at different stages in the course of events giving rise to the equities: thus Bahr, Muschinski and Baumgartner. In my opinion this court is not obliged to, nor should, deny the applicability of the constructive trust remedy in a case such as this. It is one thing to say (in the context of transfer) that, absent fraud, a potential transferee is not to be affected by notice, actual or constructive, of any trust. It is a quite separate matter to say that such a person is to be unaffected by notice, actual or constructive, of a breach of trust. Likewise, I consider, by analogy in the case of a mortgage of land. Moreover, it has been said that the purpose of indefeasibility is to protect a transferee from defects in the title of the transferor; not to free the transferee from interests with which he has burdened his own title. To deny the applicability of the in personam remedy now under discussion would not, I think, achieve that outcome.

At a glance

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Judgment (366 paragraphs)

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Legislation Cited (2)

Cases Cited (14)