Mayrin DM Pty Ltd v Kaiyu Deng

The no caveatable interest point

Mayrin's claim is that the Defendants have, in breach of their fiduciary duties, contractual duties and obligations imposed by ss 182-184 of the Corporations Act 2001 (Cth), wrongly appropriated the opportunity to purchase the properties that was an opportunity available to and exercisable by Mayrin. Mayrin claims that the circumstances give rise to a constructive trust and that Deng holds these properties on trust for Mayrin. This is territory covered by cases such as Furs Ltd v Tomkies (1936) 54 CLR 583, Warman International Ltd v Dwyer (1995) 182 CLR 544, Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 and see also Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443 in which the managing director of a company claimed ill-health and resigned, but then entered into a contract with a third party that had previously been in negotiations with the company. In that case it was held that he was in breach of his fiduciary duty and that he should not be allowed to keep the profits earned by reason of his breach.
Mr Fernandes maintains that the claim that a property is held on constructive trust gives rise to no caveatable interest in land because a constructive trust is only imposed as a remedial measure. He described the interest as "completely hypothetical and future": T2.10-12. He relies on a decision of Choi v Kim [2013] NSWSC 1774 per White J (as His Honour then was) and L J Carroll v L T Carroll [2016] NSWSC 390 per Black J.
Ms Cairns relies on what was said by Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 614: "The old maxim that equity regards as done that which ought to be done is as applicable to enforce equitable obligations as it is to create them and, notwithstanding that the constructive trust is remedial in both origin and nature, there does not need to have been a curial declaration or order before equity will recognise the prior existence of a constructive trust." She also relies on what was said in Mijo Developments Pty Ltd v Royal Agnes Waters Pty Ltd [2007] NSWSC 199 per Hammerschlag J and the case cited therein, Surfers Paradise Investments Pty Ltd v United Investments Pty Ltd [1997] QSC 179 per Ambrose J.
I set out the provisions of ss 74F(1) and (5) and 74K(1)-(2) of the Real Property Act 1900 (NSW) (the "RPA"): "74F Lodgment of caveats against dealings, possessory applications, plans and applications for cancellation of easements or extinguishment of restrictive covenants (1) Any person who, by virtue of any unregistered dealing or by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act may lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled. […] (5) A caveat lodged under this section must: (a) be in the approved form, (b) specify: (i) the name of the caveator, (ii) where the caveator is not a body corporate - the residential address of the caveator, (iii) where the caveator is a body corporate - the address of the registered office of the body corporate, (iv) unless the Registrar-General dispenses with those particulars - the name and address of the registered proprietor concerned, (v) the prescribed particulars of the legal or equitable estate or interest, or the right arising out of a restrictive covenant, to which the caveator claims to be entitled, (vi) the current reference allocated by the Registrar-General to the folio of the Register, or, as the case may be, the lease, mortgage or charge, to which the caveat relates, (vii) where the caveat relates only to part of the land described in a folio of the Register or a current lease - a description of that part in the form or manner prescribed, and (viii) an address in Australia at which notices may be served on the caveator (and, if that address is a box at a document exchange, an alternative address in Australia that is not such a box), (c) be verified by statutory declaration or, in the case of a caveat lodged by means of an Electronic Lodgment Network, be verified in a way approved by the Registrar-General, and (d) be signed by the caveator or by a solicitor or other agent of the caveator. 74K Power of Supreme Court to extend operation of a caveat lodged under section 74F (1) Where a caveator is served with a notice prepared under section 74I (1) or (2), 74J (1) or 74JA (3), the caveator may prepare, in the manner prescribed by rules of Court, an application to the Supreme Court for an order extending the operation of the caveat. (2) Subject to subsection (3), on the hearing of an application made under subsection (1), the Supreme Court may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned for such period as is specified in the order or until the further order of that Court, or may make such other orders as it thinks fit, but, if that Court is not so satisfied, it shall dismiss the application."
It will be observed that s 74F(1) provides that a person who claims "a legal or equitable estate or interest in land" may lodge a caveat and s 74K(2) refers to the Court being satisfied that the "claim has or may have substance".
In Choi v Kim, White J applied an earlier decision of Brereton J (as his Honour then was) that a claim for orders under s 79 of the Family Law Act 1975 (Cth) was not itself a basis for the existence of an estate or interest in land. His Honour referred to the plaintiff's claim that she would have a beneficial interest in the land by reason of the imposition of a constructive trust on the principles in Baumgartner v Baumgartner (1987) 164 CLR 137. His Honour held at [5] that: "the constructive trust that would be imposed on that basis would be a remedial constructive trust arising as a result of the court's orders. It would not mean that the plaintiff has a present caveatable interest in the land." At [6] his Honour said: "Counsel for the plaintiff advanced another basis for maintaining the caveat, namely, that the plaintiff may be able to establish a constructive trust on the basis of an inferred common intention on the part of both parties that she should have some beneficial interest in the land by reason of her contributions and her acting to her detriment on the basis of that common intention. (See, for example, Green v Green (1989) 17 NSWLR 343.) One difficulty with that argument is that according to the plaintiff's evidence, there were frequent arguments during the marriage at which time the defendant always referred to the house as his house and asked the plaintiff to leave. In the light of that evidence, I do not think that on the present material there is a seriously arguable case for the existence of a trust relationship on the basis of the parties' inferred common intentions."
His Honour then noted at [7]: "the caveat does not claim an interest as the beneficiary of a constructive trust either on the principles in Baumgartner v Baumgartner or on the basis of the parties' inferred common intention and the plaintiff's having acted to her detriment on the basis of that common intention."
In Carroll, Black J noted that a constructive trust arising under Baumgartner was not the interest claimed in the caveat, but his Honour went on to say: "Second, as explained by White J in Choi v Kim… a constructive trust of that kind would not be imposed until the point of the court's orders and does not support a prior caveatable interest."
In Shannon Lindsay, Caveats Against Dealings in Australia and New Zealand (The Federation Press, 1995), the learned author notes that: "…caveats are commonly lodged to protect a claim under a constructive or resulting trust, and the author is aware of only one case in which it has been suggested that an interest under such a trust is not a caveatable interest - D'Albedyhll v D'Albedyhll [(1885) 3 NZLR 391]. In this case, the argument that a wife whose husband had misused moneys held by him in trust for her and bought land in his own name had at most only an equitable lien insufficient to support a caveat was rejected. In Re Jonton Pty Ltd [[1992] 2 Qd R 105], it was not argued that a constructive or resulting trust was insufficient to support a caveat, but it was argued that until a court declared that a constructive trust existed, the claimant had only a mere equity which could not enjoy priority over an equitable interest under an unregistered mortgage, even though such an interest was created later in time. Followed to its logical conclusion, however, the argument was essentially that an interest by way of constructive trust was a mere equity which did not ripen into an equitable interest capable of supporting the caveat until judicial relief was sought and obtained, in accordance with the general principle discussed at pp 67-68 that a caveat is supported by a present and not a potential interest in land. Mackenzie J rejected the argument and held that an interest by way of constructive or resulting trust was not of a lesser nature than that of an unregistered mortgagee." (Footnotes omitted)
In Surfers Paradise, Ambrose J rejected the approach for which the Defendants here contend, saying: "In my judgment the better view is that the right to obtain relief as a beneficiary of a constructive trust of land gives that beneficiary a caveatable interest in that land."
In Surfers Paradise, the plaintiff alleged that United Investments Pty Ltd and other defendants had acted to deprive the third defendant of an interest in land that the third defendant would have had but for their intervention, and in which the plaintiff had an interest by reason of its purchase of 50% of the shares in the third defendant.
In Mijo, a caveat case dealing with the Land Title Act 1994 (Qld), Hammerschlag J referred to Surfers Paradise and said: "Ambrose J, after reviewing the authorities concerning the relationship between constructive trusts and caveats, held that it is no answer to a person's claim to lodge a caveat to say that the concept of a constructive trust is purely remedial and incapable of giving rise to a proprietary caveatable interest until its declaration." Hammerschlag J pointed out that under the Queensland legislation the result arrived at by Ambrose J would be the same simply on the basis of the Queensland statutory provisions (including the Acts Interpretation Act 1954 (Qld)).
In his judgement in Surfers Paradise, Ambrose J refers to the decision in Re Pile's Caveats (1981) Qd R 81 in which Dunn J held (in Ambrose J's words) that: "a personal equity did not necessarily constitute sufficient equitable interest to support a caveat and that where there is a personal equity only the status quo may be maintained pending trial only by means of an injunction rather than by caveat." Ambrose J referred to the Privy Council's decision in A-G for Hong Kong v Reid (1994) 1 AC 324 in which it was held that where it is claimed that land is held on constructive trust there is sufficient equity in land into which it was alleged bribes could be traced to protect that interest by caveat. Ambrose J concluded: "It is no answer to a person's claim to lodge a caveat to say that the concept of a constructive trust is purely remedial and incapable of giving rise to a proprietary caveatable interest until its declaration."
Although neither party drew attention to it, reference can also be made to Wickham Developments Ltd v Parker (unreported SC of Qld, No 1172 of 1994, Mackenzie J) referred to in Stephen Colbran and Sheryl Jackson, Caveats (Thomson Reuters, 1996) pp. 238-241, a text cited in Surfers Paradise in support of the conclusion reached in Surfers Paradise, in which a company was held to have a caveatable interest as a beneficiary under a constructive trust arising over property improved through misuse and misappropriation of company funds by an employee. The present case involves a claim of misappropriation of confidential information and, effectively, of the opportunity to invest in the properties.
In Muschinski, Deane J noted that the constructive trust can be described as "a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle." His Honour then went on to say: "There is, however, a more limited sense in which there is some superficial plausibility in the notions of 'institution' and 'remedy' as competing characterizations of the constructive trust. If 'institution' is understood as connoting a relationship which arises and exists under the law independently of any order of a court and 'remedy' is defined as referring to the actual establishment of a relationship by such an order, the catchwords of 'institution' and 'remedy' do serve the function of highlighting a conceptual problem that persists about the true nature of a constructive trust. Even in this more limited sense, however, any perceived dichotomy between the two notions tends to prove ephemeral upon closer examination. Equity acts consistently and in accordance with principle. The old maxim that equity regards as done that which ought to be done is as applicable to enforce equitable obligations as it is to create them and, notwithstanding that the constructive trust is remedial in both origin and nature, there does not need to have been a curial declaration or order before equity will recognize the prior existence of a constructive trust: cf. Scott, Law of Trusts, 3rd ed. (1967), vol. V, par. 462.4. Where an equity court would retrospectively impose a constructive trust by way of equitable remedy, its availability as such a remedy provides the basis for, and governs the content of, its existence inter partes independently of any formal order declaring or enforcing it. In this more limited sense, the constructive trust is also properly seen as both 'remedy' and 'institution'. Indeed, for the student of equity, there can be no true dichotomy between the two notions."
The statement that there "does not need to have been a curial declaration or order before equity will recognise the prior existence of a constructive trust" was relied on by Ambrose J in Surfers Paradise and Hammerschlag J in Mijo.
I note that in J. D. Heydon, M. J. Leeming and P. G. Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (LexisNexis Butterworths, 2015) at 4-240, the learned authors state in relation to RPA land that equitable claims and interests are not excluded and "the equitable interests in question include constructive trusts which have arisen to bind the registered proprietor".
Mr Fernandes drew attention to the fact that the Court might not in a case brought on the basis of a constructive trust order transfer of the property to the Plaintiff, relying on the following passages of high authority: 1. Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [200]: "Ordinarily, relief by way of constructive trust is imposed only if some other remedy is not suitable", citing Giumelli (see below) at [10], [49]-[50]. 1. Giumelli v Giumelli (1999) 196 CLR 101 at [10]: "Before a constructive trust is imposed, the court should first decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust." 1. John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at [128]: "A constructive trust ought not to be imposed if there are other orders capable of doing full justice." 1. Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [183]: "A fiduciary's liability to account to the beneficiary for breach of either of the above proscriptions can take a variety of forms. First, at the beneficiary's election and subject to considerations of "appropriateness": John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at [126]-[129] (John Alexander's Clubs); the fiduciary will hold on constructive trust any property or benefit derived in breach of fiduciary duty to the extent that that property or benefit remains extant or can be traced in the fiduciary's hands. This species of liability is conventionally regarded as deriving from the decision in Keech v Sandford (1726) Sel Cas Ch 61; 25 ER 223; Keith Henry & Company Pty Ltd v Stuart Walker & Company Pty Ltd (1958) 100 CLR 342 at 350; and see below on 'Bribes and secret commissions'"
I do not accept that Grimaldi, John Alexander's Clubs, Farah or Giumelli in the passages identified by Mr Fernandes are saying anything that undermines what was said by Deane J in Muschinski (with whom Mason J, as his Honour then was, agreed); see, also, Sze Tu v Lowe [2014] NSWCA 462; (2014) 89 NSWLR 317 at [1], [3] and [150], in which Gleeson JA said at [150]: "The institutional character of such a constructive trust may be seen as 'connoting a relationship which arises and exists under the law independently of any order of a court': Muschinski v Dodds (1985) 160 CLR 583 at 614 (Deane J), although his Honour doubted at 613 that there was any perceived dichotomy between institutional and remedial constructive trusts, preferring to view a constructive trust as both an institution and a remedy."
Mr Fernandes drew attention to the categorisation of "substantive or institutional" and "remedial" constructive trusts discussed in P. Young, C. Croft and M. Smith, On Equity (Thomson Reuters, 2009) at 6.690, and the reference to Ford and Lees' statement in H. Ford, W. A. Lee et al, Principles of the Law of Trusts (Thomson, subscription service) at 22.160: "In some categories of cases where property is unconscionably retained it is practically certain that if the Court were asked to declare that a constructive trust existed, it would so declare. There is then no problem in regarding the constructive trust as existing before any judgment of a court…" This being in contrast to the remedial constructive trust, which Ford and Lee describe at 22.160: "There other situations capable of leading to a declaration by a court that a constructive trust exists but in respect of which there may be uncertainty as to whether the court would declare a constructive trust or give some other equitable remedy, such as the benefit of a charge or lien or an award of equitable compensation."
The learned authors of On Equity give as one of the examples of a substantive constructive trust those arising from the operation of the rule in Keech v Sandford (1726) Sel Cas Ch 61; 25 ER 223 (that trustees must not use their position as trustee to make a gain for themselves) or where a fiduciary has received a bribe, such as in A-G for Hong Kong.
In the passage in Grimaldi upon which Mr Fernandes relied (and which I have set out above), the Full Court seems to treat breaches of fiduciary duty as giving rise to a substantive constructive trust. On Equity treats a breach of the principle in Keech v Sandford as that kind of constructive trust, although it gives as an example of a remedial constructive trust "where a breach of fiduciary duty has occurred" citing Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 108 and Muschinski.
It seems to me that if the Plaintiff is successful in establishing the breach of fiduciary duty that it relies on there is a strong prospect that it will be held entitled to transfer of the property (with all due allowances), i.e. that, using the taxonomy advanced by Mr Fernandes, this is a case in the substantive category.
I take White J to have accepted in Choi v Kim that a constructive trust could give rise to a caveatable interest, and his Honour was not dealing with a case of the present kind (and nor was Black J in Carroll).
Ms Cairns accepts that a court retains a discretion as to whether or not to impose upon the Defendants a constructive trust (see Muschinski itself at 614) but that does not mean that a party who has a valid claim to such relief cannot have an interest in land for the purpose of lodgement of a caveat.
I mentioned in the course of submissions my concern that even if the Defendants were held to be correct in their contention that there was no caveatable interest, the matter calls out as one appropriate for injunctive relief, an approach which, as I have noted, was taken in Re Pile's Caveat.
In Jensen, Young J (as his Honour then was) said: "Ordinarily, when one is considering whether or not to extend a caveat all one has to look at is whether pursuant to section 74K of the Real Property Act 1900, as amended, the caveator's claim has or may have substance. Accordingly, one does not evaluate the claim, one merely sees whether sufficient material is shown to indicate there may be a claim. Indeed, the court is justified in extending a caveat, at least for a short period of time, where the court can see that further investigation may provide the material which shows there is an arguable case for the interest which is claimed. Indeed, it might be said that under the Torrens System generally the court should not remove a caveat or decline to extend a caveat if there is an appearance of an arguable case. For instance, the authorities under the predecessor of section 74MA noted on page 520/1 of Woodman and Nettle's book, suggests that it is only where the claim is patently bad that the court should order there to be a removal of the caveat; see for example Evandale Estates Pty Ltd v Keck [1963] VR 647 at 652. I am not too sure whether all the authorities noted on that page support that proposition, some certainly do, but there is no doubt at all that what the learned authors say is a sufficient reflection of the policy behind pt 7A of the Real Property Act. The caveat is to remain whilst the court determines the real interest between the parties, following the usual procedures in this court, and the caveat is only to go if it is one which is patently bad, or which may have no chance of success. An undertaking as to damages may, of course, be taken from the caveator because of the defects in section 74P which have been thrown up in recent authorities."
In Gerard v Jacquin [2011] NSWSC 913 at [15] per Slattery J pointed out: "The existence of an equitable lien (as unpaid vendor under the settlement contract) is at least arguable in these circumstances. To extend the caveat the Court need only be satisfied that the caveator's claim "has or may have substance" before making an order extending the operation of the caveat: Real Property Act 1900, s 74K(2). This provision has been described as "not a very demanding test": Dowdle v Inverell Shire Council (1999) ANZ ConvR 429 at 430. The test may be satisfied if a caveator can show that there is an arguable case for final relief even though establishing that claim may not be without its own difficulties: Queanbeyan Leagues Club Ltd v Poldune Pty Ltd (1996) 7 BPR 15,078."
Mr Fernandes emphasises the fact that until the Court imposes a constructive trust over the property no proprietary interest in the land exists, but the question is not what rights has the Plaintiff now established but what rights it claims to have and its claim is that by reason of the facts asserted it is entitled to the property or an interest in it.
I acknowledge that there is some uncertainty created around the extent to which a claim for a constructive trust can found a caveat but the two cases relied upon by the Defendants are dealing with a different class of case and those which come closest to the present case factually, i.e. Surfers Paradise, Mijo and (it would seem from the summary in Colbran and Jackson) Wickham, support the conclusion that it does. In my view, the approach in Surfers Paradise, Mijo and Wickham should be followed.
The lodgement of the caveat does not require that the claimant prove that it must succeed on its claim but rather that it claims to be entitled to an interest in land and, as I have noted, the Defendants have conceded that there is a serious issue to be tried as to whether the Defendants have breached duties owed to Mayrin and this must include an issue as to the remedy to which it will be held entitled.

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