Mimi v Millennium Developments Pty Ltd [2003] VSC 260

Supreme Court of Victoria|2003-06-19|Before: NETTLE J

Real property - priorities - caveat - failure of purchaser to caveat - subsequent purchaser - whether first purchaser postponed injunction - interlocutory injunction - balance of convenience - Transfer of Land Act, s. 90(2)

This proceeding was instituted by writ filed on 7 May 2003 pursuant to s. 90(2) of the Transfer of Land Act . By his statement of claim which is endorsed on the writ the plaintiff seeks specific performance of a contract of sale of land made 24 September 2002 between the plaintiff and the firstnamed defendant, Millenium Developers Proprietary Limited, and interlocutory and final injunctions to restrain the fourth defendant, the Registrar of Titles, from registering a transfer of the land to the third defendant and a mortgage over the land in favour of the fourth defendant.

On 12 May 2003 Coldrey J made an interim order ex parte but on notice restraining the Registrar from registering the transfer and mortgage until 9 June 2003, and by further order made on 22 May 2003, the interim injunction was continued until 4.15 pm this day.

The plaintiff now applies by summons dated 7 May 2003 for an order restraining the Registrar from registering the transfer and mortgage until the hearing and determination of the proceeding and the defendants oppose such an order on grounds that they would thereby be irreparably damaged.

It is not seriously in dispute that the plaintiff's case raises a serious question to be tried as to the final relief which it seeks, but it is contended on the part of the defendants that the plaintiff's case is a weak one and that the balance of convenience is so overwhelmingly in favour of the defendants that the injunction should be refused.

The matter is not without complication, since there have already been filed a significant number of affidavits in which varying versions of events are deposed to. For present purposes, however, it may be enough to say that the contest is in substance one of whether the failure of the plaintiff to lodge a caveat on title to protect his interest in the land under the contract of sale of 24 September 2002, coupled with the loss which would be suffered by the third and fourth defendants if they were deprived of their interests in the land, are together sufficient to postpone the plaintiff's interest to the interests of the third and fourth defendants.

The essential facts are that on 24 September 2002 the plaintiff entered into the contract of sale with the first defendant which provided for the sale of the land and for the construction by the second defendant of a home of almost 20 squares on the land in accordance with plans specified by the plaintiff, at a total price of $226,000, payable by way of a deposit of $45,200 upon the signing of the contract and by payment of the residue of $180,800 on or before 4 December 2002. The precise details are in dispute but it is clear that the plaintiff paid some if not all of the deposit of $45,200. The plaintiff did not lodge a caveat on title to protect his interest as purchaser and the balance of the purchase price was not paid on or before 4 December 2002, or at all (although there is a dispute as to the reasons for that).

There are some indications in the evidence before me that the plaintiff's failure to pay was due to inability to raise finance. The plaintiff did obtain an indicative letter of offer of finance, but the offer was conditional upon a number of requirements including completion of construction of the property, and according to its terms, the offer lapsed at the end of January 2003.

On 5 February 2003, the first defendant entered into a contract of sale with the third defendant to sell to the third defendant the land at a price of $110,000, payable by a deposit of $11,000 on the signing of the contract and by payment of the residue on 4 March 2003. On the same day, the first defendant entered into a New Homes Contract with the third defendant to construct a house for the third defendant on the land in accordance with the specifications set out in the contract, at the price therein provided, within a period of 240 days.

Some time in February 2003, the plaintiff noticed that construction works had begun on the land and although at first he thought that the works related to the home that the first defendant had agreed to build for him, he later became concerned that that might not be so and therefore he consulted a solicitor. He has sworn that his fears were excited by, amongst other things, his inability to contact the second defendant for a period of some three months up to that date. On 7 February 2003, the plaintiff's solicitor wrote to the first defendant alleging that the first defendant was in breach of the contract of sale (by reason of the first defendant's failure by the settlement date of 4 December 2002 to procure completion of the house in accordance with the plaintiff's specification and to provide vacant possession of the property). The letter asserted that a deposit of $40,000 had been paid and sought advice as to the first defendant's authority to use the deposit funds before release pursuant to s. 27 of the Sale of Land Act. It continued:

"Our client reserves its right to rescind the contract and looks to you for loss and damage arising from your breach. Without prejudice to the above rights, however, our client has instructed us to put the following offer to you, namely: our client proposes to purchase the above property from you for the value stipulated in Special Condition 3(a) of the contract, i.e. $78,400 without obliging you to undertake any building works whatsoever and with settlement taking place within one month of the day of sale. Please be advised that this offer is open for seven days of the date of this letter (sic) and should we not hear from you within this time, our instructions are to issue a rescission notice and to look to you for loss and damages arising out of your breach."

By all accounts, there was no response to the letter, and thus on 5 March 2003 the plaintiff's solicitor wrote to the first defendant again, in these terms:

"... owing to your breaches of Contract of Sale for the above property, our client now wishes to rescind the contract and seek a refund of his deposit and damages from you arising out of your breaches. Nevertheless and without prejudice to our client's rights arising from your conduct, in a last ditch effort to resolve this issue without the need for recourse to the courts, our client has instructed us to reiterate the offer put to you in our correspondence of 7 February 2003, namely, to purchase the property from you to the value stipulated in Special Condition 3A of the Contract, ie. $78,400, without obliging you to undertake any building works whatsoever and with settlement taking place one month from the date of sale. ... Should we not hear from you with a response within seven days of the date of this letter, then our client's instructions are to issue a Recision Notice without any further warnings to you and to issue proceedings against you for loss and damage arising out of your breach."

So far as appears from the evidence which is before me, there was no response to that letter either, and thus on 28 March 2003 the plaintiff's solicitors wrote once more to the first defendant, referring to the previous correspondence and then continuing as follows:

"Our client maintains its earlier position and is particularly concerned at your breach of Contract of Sale, dated 24 September 2002. To date you have in breach of the contract, failed to procure the completion of a dwelling house in accordance with the Special Conditions of the contract and provide vacant possession of the property and chattels therein. ... Unless we receive within seven days of the date of this letter an undertaking that the terms of the contract will be adhered to and a timetable for doing same, we are instructed by our client to issue proceedings against you for specific performance and/or loss and damage arising out of your persistent breach."

Meanwhile, on 17 February 2003, the conveyancing company retained by the third defendant had conducted a title search and found nothing to suggest any encumbrance or impediment in the way of a transfer of clear title from the first defendant to the third defendant.

On 27 February 2003, in preparation for settlement of the mortgage, the fourth defendant had also conducted a title search and ascertained that the title was clear and, on the faith of that search, it advanced the sum of $97,765.20 to the third defendant with which to complete the contract of the sale between the first defendant and the third defendant.

On 4 March 2003, being the date for settlement of the contact of sale between the first defendant and the third defendant, the third defendant's conveyancing company conducted a further search on title and found no impediments and, on the same day, after that search had been obtained, the third defendant completed the contract of sale by paying the balance of the purchase price out of funds advanced to the third defendant by the fourth defendant.

On 13 March 2003 the first defendant requested a first progress payment under the New Home Contract (for construction works up to that date) and pursuant to that request the fourth defendant paid the amount of $12,480 to the first defendant by way of further mortgage advance to the third defendant.

On 24 March 2003 the first defendant requested payment for the second stage of construction pursuant to the New Home Contract, and on 26 March 2003 the fourth defendant paid the second stage instalment of $18,720 to the first named defendant by way of further mortgage advance to the third defendant.

On 3 April 2003 the solicitor for the plaintiff lodged on title a caveat prohibiting any dealing other than by way of transfer of the land to the plaintiff.

On 7 April 2003 the first defendant requested payment of the third stage instalment pursuant to the New Home Contract and on 9 April 2003 the fourth defendant, apparently unaware of the caveat, paid the sum of $43,680 in satisfaction of that call by way of further mortgage advance to the third defendant.

On 14 April 2003 the fourth defendant lodged for registration a transfer of the land from the first defendant to the third defendant together with the mortgage from the third defendant in favour of the fourth defendant.

On 1 May 2003 the first defendant requested payment of the final instalment under the New Home Contract and on 6 May 2003, still apparently unaware of the caveat that had been lodged on 3 April 2003, the fourth defendant paid the sum of $31,200 to the first defendant in satisfaction of the final instalment (by way of further mortgage advance to the third defendant).

On 17 April 2003 the Registrar of Titles gave notice to the plaintiff that the caveat of 3 April 2003 would lapse at the expiration of 30 days unless action were taken pursuant to s. 90(2) of the Transfer of Land Act to substantiate the plaintiff's claim as caveator.

Finally, as I say, on 8 May 2003 this proceeding was instituted when the writ dated 7 May 2003 was filed.

The principles which govern priorities as between competing equitable interests in Torrens title land in this State were considered by the Appeal Division in Jacobs v Platt Nominees Proprietary Limited[1]. Plainly one starts with the position that the interest which is first in time will prevail, qui prior tempore potior jure est, but that may change where the prior equitable interest holder has acted in such a way that it would be unconscionable if his interest were to prevail over the subsequent interest holder.

Jacobs v Platt Nominees lays down authoritatively that mere failure to lodge a caveat is not enough in itself to postpone a prior equitable interest holder to a subsequent equitable interest, even where the subsequent interest has been acquired bona fide and for value without notice and on faith of the title. In so doing it reflects the conclusions reached by Barwick CJ in J & H Just Holdings Proprietary Limited v Bank of New South Wales[2].

Jacobs v Platt Nominees, recognises, however, as indeed was recognised by Barwick CJ in J & H Just Holdings, that there may be situations in which failure to caveat, when combined with other circumstances, justifies the conclusion that the "act or omission proved against" the possessor of the prior equity "has conduced or contributed to a belief on the part of the holder of the subsequent equity at the time when he acquired it that the prior equity was not in existence." When that occurs priority may be reversed.

As Bryson J pointed out in Double Bay Newspapers Pty Ltd v A.W. Holdings Pty Ltd[3]:

"Examples of those circumstances occur where the holder of a late interest search of the register found not such information as lodgment of a caveat would have put there and acted in reliance on the apparent absence of any such interest. As is shown by J. & H. Just Holdings, where these circumstances exist, they may not be the only significant circumstances and they may be outweighed by other circumstances."

In short, priority which might otherwise exist according to the time at which an interest was acquired may be lost where some act or omission by the holder of the earlier interest has led the holder of a later interest to acquire his interest upon the supposition that the earlier did not exist.

In the debate before me today much has been said on behalf of all parties about the application to the facts of this case of the decision in Jacobs. On behalf of the plaintiff it has been put that the position here is in principle no different to Jacobs and that the facts are essentially the same. On behalf of the defendants it has been urged that the position here is essentially different to Jacobs, for at least two reasons. First, it is said that whereas in Jacobs there was no detriment other than that the subsequent equitable interest holder was denied the property which he sought to acquire, in this case the third defendant, if not accorded priority, would be deprived of not only his interest in the land but also the home which has been built on it at his cost and according to his specification, and the costs of his finance and other necessary and incidental expenses as to the repayment of which there is no guarantee. Secondly, it is said that whereas in Jacobs the prior equitable interest holder had no reason to suspect that the holder of the legal estate might create a subsequent equitable interest in the property, here the arm's length, albeit familiar relationship between the plaintiff and the first and second defendants was reason to expect that a subsequent equitable interest might be created. That was especially so, it was submitted, given the apparent lapse of the contract in December of 2002; the inability or at least apparent inability of the plaintiff to obtain the sort of finance which was required; and the total lack of communication between the plaintiff and the first and second defendants for the period of three months leading up to the creation of the subsequent equitable interest.

In my opinion, the facts in this case are distinguishable from those in Jacobs for the reasons that have been advanced.

As I read Jacobs, the relationship between the prior equitable interest holder and the owner of the legal estate was so personal and close as to make it inconceivable that the owner of the legal estate would go behind the back of the prior equitable interest holder. It was found as a fact that it could not have been foreseen by the plaintiff that her parents would combine effectively to deny her the interest to which she was entitled.

Contrastingly in this case, despite the evidence (which I accept for the purposes of this application) that there was a close commercial relationship between the plaintiff and the first and second defendants, there is nothing like the sort of relationship on which the decision in Jacobs was founded and having regard to the apparent lapsing of the contract, the inability to obtain finance and the lack of communication for a period of some three months, I agree that there was reason to suspect that the subsequent equitable interest might be created.

Furthermore, in Jacobs it was plain that there was no detriment in the relevant sense. There had been a change of position by the subsequent interest holder, but mere change of position was not enough to postpone an interest earlier in time to one subsequently created. Ordinary principles require that a party who seeks to reverse the order of priorities must show not only change of position but also that he has suffered detriment by reason of the failure of the earlier interest holder to caveat.

In this case, the third and fourth defendants would suffer detriment if they were not accorded priority over the claim of the plaintiff. The third defendant would be deprived of the land and house which he has purchased and all of the moneys that he has laid out in acquiring the land and having the house constructed on the land, and the fourth defendant would be deprived of security in respect of the moneys that it has laid out to enable acquisition of the land and the construction of the house.

It has been submitted on behalf of the plaintiff that the detriment is not irreparable, inasmuch as the third defendant and the fourth defendant through the third defendant would be entitled to recover from the first defendant the moneys that have been paid. But the point is well made, I think, that there is nothing to show that the first defendant has the capacity with which to repay those sums. Nor is it at all clear that the third defendant and hence the fourth defendant would be entitled to recover all of their outgoings of interest, costs and incidentals. The plaintiff does not offer any security.

I put to one side a claim made by the first and second defendants that any injunction of the kind which is sought by the plaintiff would exacerbate damage already suffered by the first and second defendant through loss of reputation. If that were all that were involved, I would not be persuaded that the balance of convenience does lie where it does.

I also put to one side the doubts that have been cast upon the plaintiff's claim that it has a special or unique interest in the property (because of its suitability for the garaging of trucks and access and close proximity to the work of the plaintiff) and upon the claim of the plaintiff that he has always wished to complete the contract as opposed to recover his deposit upon recision. I assume for the purposes of this application that all of that which the plaintiff asserts about those matters is established.

The fact remains, however, that the third and fourth defendants dealt on the faith of the register. It is not suggested, and even less is there any evidence, that they had reason to know or suspect that there may be a prior competing equitable interest. They have advanced significant sums of money on the faith of their searches, and undoubtedly only because those searches showed that the title was clear, and there is no certainty that they could recover and indeed the probability is that they could not recover all of those sums if they were deprived of priority.

Some reference has been made to the decision of Gowans J in Osmanoski v Rose[4], in which his Honour held it to be sufficient to postpone a prior equitable interest to a subsequent equitable interest that the prior equitable interest holder had not lodged a caveat on title. But I consider that that is not a decision which I should follow. There seems to be error in it. In Jacobs the Appeal Division observed at p.156:

"We are ... of the view that to the extent that the learned trial Judge proceeded upon the basis that an alteration of position without detriment suffices to found an estoppel there was an error of law on his part."

I proceed on the basis laid down in Jacobs that in order to postpone a prior equitable interest holder the subsequent holder must show not only that there has been an act which is capable in all the circumstances of being regarded as unconscionable (such as, for example, the failure to lodge a caveat), but also detriment which renders that act unconscionable. I conclude that in this case those conditions are satisfied, because of the detriment which would be suffered by the third and fourth defendants if they were not accorded priority.

For those reasons, I consider that notwithstanding that the plaintiff has established a serious question to be tried (upon the strength of which I pass no more judgment than that the serious criticisms which have been made appear to have some basis in the evidence), the balance of convenience so much favours the defendants that the injunction which is sought should be refused.

At a glance

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Judgment (51 paragraphs)

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Cases Cited (2)