Supreme Court of WA|2006-06-29|Before: Simmonds J

Multan Pty Ltd v Ippoliti & Anor [2006] WASC 130 (29 June 2006)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : MULTAN PTY LTD -v- IPPOLITI & ANOR [2006] WASC 130

MATTER : Section 138C of the Transfer of Land Act 1893 (WA) (as amended)

Whether serious question to be tried as to constructive trust - Whether such interest would be defeated by laches or acquiescence - Whether order dismissing application but with ancillary order to give the caveator the security provided by its caveat was appropriate

Application for orders allowed; further submissions as to orders called for

Barnes v Addy (1874) 9 Ch App 244

Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373

Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42

Hamdan v Widodo [2004] WASC 123

Hancock Family Memorial Foundation Ltd v Porteous [1999] WASC 55; (1999) 151 FLR 191

His Grace Metropolitan Petar & Ors v Macedonian United Society of Western Australia Incorporated & Ors [2003] WASC 15

Hooke v Holland [1984] WAR 16

In re Diplock [1948] Ch 465

Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440

Pindan Pty Ltd v Sunny's Redevelopment Pty Ltd [2001] WASC 104

See-Day Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309

Corporate Affairs Commission v Drysdale [1978] HCA 52; (1978) 141 CLR 236

Glasson v Fuller [1922] SASR 148

Hospital Products International Pty Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 58 ALJR 587

Jones v Lipman [1962] 1 All ER 442

Kettles and Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108

Mario Casella & Sons Builders Pty Ltd v Duckworth [2005] WASC 245

Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173

Perpetual Pty Ltd v National Australia Bank [2002] WASC 13

Porter v McDonald [1984] WAR 271

Re Diplock [1948] 1 Ch 465

Re Hallett's Estate [1880] All ER 793

1 This is the return of a chamber summons and an originating summons under Transfer of Land Act 1893 (WA), s 138C, to extend the operation of a caveat, J501701, in relation to land in Subiaco, being all of that land situated at and known as Unit 15, 76 Subiaco Road, Subiaco, Western Australia, and being more particularly described as Lot 15 on Strata Plan 7279 and being the whole of the land comprised in Certificate of Title Volume 1540 Folio 874 ("the Subiaco Unit"). By order of Master Newnes on 25 January 2006, the operation of the caveat had been extended until further order of the Court.

2 This matter raises the issues of the application of the basic approach recognised in the authorities to an application to extend a caveat where there is a contest on what the evidence before the Court permits it to conclude as to whether or not there is the caveatable interest asserted. This matter also raises the question of what approach should be taken to, including what orders might be made under, s 138C, in the event sufficient evidence of a caveatable interest for the purposes of that provision is found.

3 I begin by describing the background to this matter. I then set out the principles of law applicable to its resolution, before I consider the issues arising under those principles. I end with what order or orders might be appropriate on my conclusions.

4 The caveatable interest is given in the caveat as that of "beneficial owner pursuant to a constructive trust". The statutory declaration attached to the caveat locates the constructive trust in the use by the registered proprietor of the Subiaco Unit, Mr Joel Ippoliti, of the proceeds of sale of a property in Albany ("the Albany Property"). The Albany Property is said to have been held until its sale upon a constructive trust, and its proceeds are said to have been used as part of the purchase price of the Subiaco Unit. The basis for the constructive trust of the Albany Property is in turn laid in Mr Ippoliti's mother, a Mrs Julie Mackaway, causing the plaintiff's sale of the Albany Property to him while she was a director of the plaintiff (or acting the position of a director) in breach of her duties to the plaintiff, and in circumstances where Mr Ippoliti knew or ought to have known she was acting in breach of those duties, or was knowingly assisting her in the sale and settlement of the sale of the Albany Property.

5 On 30 November 2005 the plaintiff by writ of summons with statement of claim filed on that date had commenced CIV 2397 of 2005 against Mrs Mackaway and Mr Ippoliti claiming relief in respect of the former's breaches of duties to the caveator, with the relief sought against Mr Ippoliti including a declaration of constructive trust in respect of the Subiaco Unit.

6 The originating summons to extend the operation of the caveat was filed on 19 December 2005. The chamber summons to extend the operation of the caveat was filed on the same day.

7 There are affidavits lodged for the purposes of the originating summons and the chamber summons, of another director of the caveator, a Mr Wilfred Greenway, who had been living in a de facto relationship with Mr Ippoliti's mother (his affidavits sworn 19 December 2005 and 7 February 2006); from Mr Ippoliti's mother, Mrs Mackaway (her affidavit sworn 20 January 2006); from Mr Ippoliti (his affidavits sworn 20 January 2006 and 14 February 2006); and from a Ms Toni Griffin, who is and has been at all material times in a de facto relationship with Mr Ippoliti (her affidavit sworn 3 April 2006). As will be seen shortly, there are substantial contests on a number of the facts material to the establishment of the caveatable interest claimed.

8 It is common ground that Mrs Mackaway was a director of the caveator until 15 May 1999, and that the sale of the Albany property occurred later, in September 1999, with settlement on 13 December 1999. There is a contest over whether Mrs Mackaway acted as a director subsequently to 15 May 1999, and over whether the Albany property was sold at an undervalue as Mr Greenway deposes. The purchase price was $100,000.00, and at settlement proceeds of a loan secured by a mortgage, in the amount of $61,368.48 at least, were paid, and were applied as to $61,066.48 in the discharge of a previous mortgage. The mortgage first referred to, under which Mr Ippoliti was mortgagor, was for $72,600.00. There is no contest that the balance of the purchase price was provided through a cheque drawn by Mr Greenway in the amount of $28,252.50, and returned to him at settlement. There is a sharp difference in the evidence as to what occurred to the cheque afterwards. The difference between the total of the cheque and the loan proceeds and $100,000.00 in terms of receipts at the settlement is not easily explained on the material in front of me, but nothing for my purposes was said to rest on that difference.

9 There is no contest that Mr Ippoliti made the mortgage payments on the Albany Property and received the rent paid for it until he sold the property. The sale was by offer and acceptance dated 27 February 2001, for a sale price of $130,000. There appears to be no contest that from the net sale proceeds of about $124,000, he repaid the mortgage on the Albany Property, and from the balance of about $51,000 he applied $17,000 towards the purchase, in April 2001, of the Subiaco Unit, for $85,000. The balance of the purchase price of the Subiaco Unit, $68,000, was the proceeds of a mortgage from the Commonwealth Bank under which Mr Ippoliti was the mortgagor. The destination of the balance, $34,000, of the $51,000 from the sale of the Albany Property is in contest: Mr Ippoliti says it went to his "parents", while Mr Greenway says he did not "personally" receive any of that balance.

10 Subsequently, after a period living in the Subiaco Unit with Ms Griffin, and for Mr Ippoliti after a period overseas, Mr Ippoliti and Ms Griffin moved to Sydney. There, in September 2004, they purchased a property with the proceeds from a mortgage from the Commonwealth Bank, using the equity from the Subiaco Unit as security. That equity was also subsequently used to secure a line of credit for renovations to the Sydney property.

11 Finally, there is no contest that on 3 November 2005 Mr Ippoliti by offer and acceptance of that date sold the Subiaco Unit for $165,000. Mr Ippoliti's purpose for the sale was to pay down the debt to the Commonwealth Bank. Settlement of that sale was due to occur on 9 December 2005. Caveat J501701 was lodged with the Registrar of Titles on 8 November 2005. As a result of that caveat, settlement cannot occur, and penalty interest for late settlement, payable to the purchaser, is accruing.

12 Counsel for Mr Ippoliti put to me that I should find there was, for the purposes of s 138C, no caveatable interest as claimed. Counsel for Mr Ippoliti also put it to me that, even if sufficient evidence of a caveatable interest were to be found for the purposes of s 138C, I should also take account of the matter of the delay in the assertion of that interest. In equity that delay, in the circumstances of this case, it is said, would be sufficient to deny the caveator the interest it claimed. However, it was put to me, whether this delay in those circumstances went to deny the caveator a caveatable interest, or was such as would in any event cause a court to withhold an extension of the caveat in the exercise of its discretion under s 138C, no order should be made under that provision.

13 Finally, counsel for Mr Ippoliti put it to me that even if there was a caveatable interest, and the delay in the circumstances was not itself sufficient to prevent any order under s 138C being made, I should take account of that delay by moulding an appropriate order under that provision. Such an order would allow for the delayed settlement of the sale of the Subiaco Unit to go forward while properly protecting the interests of the caveator.

14 Act s 138C sets out the powers of the court when the caveator has been called upon, under s 138B, to justify a caveat which, unless justified, will lapse. The former provision is in material part as follows:

"(1) A caveator who is served with a notice under section 138B(1) may apply to the Supreme Court, in accordance with rules of the Court, for an order extending the operation of the caveat.

(2) On the hearing of an application under subsection (1), the Supreme Court -

(a) if satisfied that the caveator's claim has or may have substance -

(i) may make an order extending the operation of the caveat for such period as is specified in the order;

(ii) may make an order extending the operation of the caveat until the further order of the Court; or

(iii) may make such other orders as it thinks fit concerning the caveat or the land in respect of which the caveat was lodged;

(b) if not satisfied that the caveator's claim has or may have substance, shall dismiss the application; and

(c) may make such ancillary orders in relation to the application as it thinks fit."

15 The basic approach that the courts should take to applications under this provision is conveniently set out in Hamdan v Widodo [2004] WASC 123, Jenkins J, at [19]:

"It is clear from the statutory scheme that in an application under s 138C of the Act the onus is upon the caveator to satisfy the court that the caveator's claim has or may have substance. This has been interpreted as an onus to satisfy the court that there is a serious question to be tried as to whether a caveatable interest exists. The caveator must also satisfy the court that the balance of convenience favours the retention of the caveat. However, if there is a serious question to be tried it will be unusual for the balance of convenience to lie in the refusing of an application to extend a caveat: Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42."

16 Counsel for Mr Ippoliti put to me, however, that the approach in Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, which was a case on establishing a caveatable interest under s 137, and not for the purposes of s 138B and s 138C, needed to be qualified to take account of the difference in the statutory context, and that His Grace Metropolitan Petar & Ors v Macedonian United Society of Western Australia Incorporated & Ors [2003] WASC 15, Barker J, so recognised.

17 I disagree. The indications in his Honour's judgment in Macedonian United Society are in fact to the contrary. Indeed, his Honour's conclusion in that case was that in the exercise of the court's discretion under s 138C he would not order the extension applied for or any other relief, as "the circumstances of the case were 'unusual', to adopt the expression used in Ravi and other cases" (at [75]). I will return to consider that aspect of his decision.

18 There is also the authority on s 138C on which his Honour principally relied (at [33]), Pindan Pty Ltd v Sunny's Redevelopment Pty Ltd [2001] WASC 104, Murray J. I particularly note the following from Pindan, Murray J, at [8] and [9]:

"It follows in my opinion that the balance of convenience, in the sense in which that term is understood in relation to the grant or refusal of interlocutory injunctions, remains a factor to be considered. The leading authority in that regard, in my opinion, remains [Ravi]. In that case Owen J [at p 50], with whom Malcolm CJ and Walsh J agreed, held that although considerations of the balance of convenience would require to be taken into account:

'... it seems to me that interlocutory removal of a caveat where an arguable case as to the existence of the caveatable interest has been demonstrated, will be unusual. It is important to bear in mind the nature and purpose of a caveat under the Torrens System. By its very nature, a caveatable interest must be a proprietary interest in land. The purpose of the caveat is to restrain the registered proprietor from dealing with the land in a way which will defeat or derogate from the incidents attaching to that proprietary interest until the respective rights of the parties have been honoured (if there is agreement) or determined (if there is disagreement). In many cases, removal of the caveat will have the effect of destroying for all practical purposes, the benefit of the proprietary interest. For example, a creditor, having a specific security interest in land, will rank as an unsecured creditor once the property, the subject of the specific security, no longer exists. This will often be the result of removal of a caveat which permits the registered proprietor to sell the property free from any practical obligation to account to the secured creditor for the proceeds of sale.'

In so holding his Honour applied the decision of Rowland J in Porter v McDonald [1984] WAR 271.

In my respectful opinion the same observations may be made about the application of the present s 138C(2), given that the order made by the court will not be one to remove the caveat, but one to defeat the statutory lapsing of the caveat under s 138B(1) by ordering its operation to be extended. The essential point remains that the demonstration of a caveatable interest will ordinarily secure the extension of the operation of the caveat unless it appears to be clear that it may be removed, perhaps in the context of the making of ancillary orders under s 138C(2)(c), in circumstances which do not sacrifice the security provided by the caveat to the caveator or, if that interest is to be sacrificed, that should only be done for good reason."

19 The only potentially relevant difference in the statutory context between s 137 and s 138B and s 138C may lie in the availability of the statutory right to compensation in s 140: as Barker J in Macedonian United Society at [34] noted, it is not clear that that provision applies to loss or damage arising from the extension, as opposed to the lodgement, of a caveat. See also Hooke v Holland [1984] WAR 16, Brinsden J, at 20. However, no argument was addressed to me on this point, and it is not evident to me that, in the circumstances of this case, any damages resulting from the maintenance of the caveat could not be attributed to the circumstances of its lodgement. There are also on the Court's file undertakings to the Court as to damages, from both the caveator and Mr Greenway.

20 Whether the circumstances in this case are not "unusual" such that they should lead to an order of extension being made, or rather whether another order should be made in the exercise of the discretion in s 138(2)(c), as indicated by Murray J in Pindan, in his reference to "ancillary orders", are matters I return to below.

21 Before me the plaintiff's case for the constructive trust was rested on findings it was said I should make that there were serious questions to be tried that Mrs Mackaway owed the duties of a director to the caveator at the time of the sale and settlement of the sale of the Albany Property, that she breached those duties, both by causing the sale of the property at an undervalue and by causing the settlement of the sale with a shortfall of the proceeds of sale, and that Mr Ippoliti held his interest in the Albany Property on constructive trust. He so held that interest, by virtue of his knowledge or reason to know of the circumstances, of a duty to make restitution for unjust enrichment, or of his participation in the breaches of duty, and by virtue of the tracing of the interest in the Albany Property into the Subiaco Unit. There is a contest in the affidavit evidence before me as to all of these.

22 In approaching a conflict in the evidence, the authorities on a serious question to be tried in relation to interlocutory injunctions indicate that I must take account of all of the relevant evidence, whether from the plaintiff or the defendant, but that it is not the court's function to resolve conflicts of evidence in such cases. See Seaman, Civil Procedure in Western Australia, at [52.1.9].

23 Further, the courts are "reluctant to withhold relief if the only ground for doing so involves the rejection of evidence on credibility grounds": Owen J, "The Interlocutory Injunction", in Carroll, R (ed) Civil Remedies: Issues and Developments, Federation Press, Leichhardt, 1996, at 256.

24 This last point is of some significance in this case, as counsel for Mr Ippoliti put considerable emphasis on the fact that the matter of the cheque for $28,252.50 did not appear in Mr Greenway's original affidavit (of 19 December 2005), but only in his further affidavit (of 6 February 2006). This omission, it was said, on a matter which, as will be seen, is of considerable importance to the plaintiff's case, should be seen to go to Mr Greenway's credibility generally. However, I do not so conclude. As will become clear, Mr Greenway's evidence is that the cheque was handed to Mrs Mackaway after settlement, and that the cheque was drawn on the account of a business of which he deposes (if indirectly) he did not have control. I do not consider I can determine from that initial omission, in those circumstances and in proceedings like these, that Mr Greenway is not a credible witness. That matter is one for the trial of the principal action.

25 The evidence for Ms Mackaway being a de facto director of the plaintiff at the material time from Mr Greenway is his deposing that she so acted, "for example" by signing the contract of sale to her son of the Albany Property, communicating with the plaintiff's bank for the discharge of its mortgage over the property, and communicating with the plaintiff's accountants in relation to the lodgement of the plaintiff's annual returns and the preparation of its tax returns for the years ending 30 June 1999, 2000, 2001 and 2002 (Greenway affidavit of 19 December 2005, par 6).

26 Ms Mackaway denies she made "any decisions for the company after resigning as director" (Mackaway's affidavit of 20 January 2006, par 8). There is, however, some documentary material annexed to her affidavit indicating she signed the transfer of the Albany Property to her son, although as secretary of the company (Annexure "JKM2", at p 25), to which Mr Greenway calls attention (his further affidavit of 6 February 2006, par 12). However, Ms Mackaway denies that she acted as secretary of the plaintiff after resigning as a director, and also denies that she signed the transfer (her affidavit of 20 January 2006, par 12).

27 In that state of the evidence, I conclude that there is a serious question to be tried as to Ms Mackaway acting as a de facto director at the relevant time.

28 The evidence for Ms Mackaway causing the Albany Property to be sold rests, it seems, on the evidence from Mr Greenway as to the signing of the contract of sale from Mr Greenway, contradicted by Ms Mackaway as I indicated above. I do not need to say any more about it.

29 The evidence of the property being sold at an undervalue in breach of Ms Mackaway's duties as a director of the plaintiff rests it seems on Mr Greenway's statement that the value of the Albany Property at the time of the sale contract was $135,000 (Greenway affidavit of 19 December 2005, par 9), and Ms Mackaway having indicated to Mr Greenway, in May 1999, that she saw the value of the Albany property as being $125,000, which should be considered against its resale to her son some four months later for $100,000 (Greenway, further affidavit of 6 February 2006, par 10 and Annexure "G13").

30 Counsel for Mr Ippoliti put it to me that neither deponent was shown to have an expertise in the valuing of real estate, and their evidence should be ignored for this purpose. However, I note that Ms Mackaway claims a work history in real estate, and on the basis of that history she had advised her son in September 1999 that he "might consider investing in real estate" (Mackaway affidavit of 20 January 2006, pars 2 and 9). Mr Greenway makes no similar claim to a background in real estate.

31 On that state of the evidence, where the basis for any opinions has not emerged, as I would expect them to at trial, I would not consider these opinions, of persons who were directors of the company that owned the Albany Property at the relevant time, should be ignored.

32 I have also noted that there is evidence, from Ms Mackaway, that she and Mr Greenway had received, apparently "[p]rior to September 1999", "estimates from local real estate agents of a selling price between $105,000 and $110,000" (her affidavit of 20 January 2006, par 10). There is also evidence, from Mr Ippoliti, based on "the previous purchase price" of the Albany Property (of which he provides no further details: his mother's affidavit refers, at par 6, to having used $40,000 some time after the sale of a property of hers in or about 1993 "to fund" the purchase of two properties by the plaintiff, one of which was the Albany Property), his inspection of the property and his "experience having lived in Albany for a number of years", that $100,000 was a "reasonable price" (Ippoliti affidavit of 20 January 2006, par 5).

33 On this state of the evidence I consider there is a serious question to be tried as to Ms Mackaway having caused the plaintiff to sell the Albany Property at an undervalue.

34 The evidence as to Ms Mackaway causing the settlement of the sale with a shortfall in the proceeds of sale appears to rest on the evidence as to the cheque for $28,252.50 drawn by Mr Greenway and handed by Mr Ippoliti to Mr Greenway at settlement. Mr Greenway's evidence was that the cheque was part of arrangements stipulated for by Ms Mackaway, to whom after settlement he gave the cheque (Greenway, further affidavit of 6 February 2006, pars 5 and 15). Mr Ippoliti's evidence was simply that Mr Greenway "provided" the cheque (Ippoliti affidavit of 20 January 2006, par 7), and that after the settlement of the sale of the Albany Property, he "returned" $34,000.00 to his "Parents", apparently meaning both Mr Greenway and Ms Mackaway (par 18 read with par 2). Ms Mackaway's evidence was that prior to the settlement of the purchase of the Albany Property Mr Greenway told her "the bank" required a cheque for the difference between "the purchase price and the mortgage", and that after the settlement Mr Greenway told her he had torn the cheque up (Mackaway's affidavit of 20 January 2006, pars 14 and 16).

35 I note that there is no evidence from Mr Greenway, the drawer of the cheque, as to what was done with the cheque after it was returned to Ms Mackaway, and in particular whether or not the cheque was ever presented for payment. Ms Mackaway's evidence, as I have indicated, was that the cheque was torn up. However, I have also noted the evidence that the cheque was drawn on the account of a business, "Mackaway Constructions", which was, initially at least, owned by Ms Mackaway (her affidavit of 20 January 2006, par 4), although there is a conflict in the evidence as to its control at the time the cheque was drawn. Ms Mackaway's evidence is that Mr Greenway was conducting its business as a "sole trader" (her affidavit, par 15), while Mr Greenway's evidence, although somewhat indirect, appears to be that he was not "in control" of it at that time (his further affidavit of 6 February 2006, par 14). In that state of the evidence, I do not attribute any significance to the lack of evidence from Mr Greenway as to whether the cheque was ever presented for payment.

36 However, there is no evidence from Mr Greenway as to whether or not the cheque's proceeds were ever credited to the plaintiff. As it is his case that there was a shortfall in settlement proceeds, and as he was a director at the relevant time, I consider this gap in the evidence significantly weakens the plaintiff's case. However, I consider the case nonetheless to be made out that there is a serious question to be tried as to the shortfall of settlement proceeds.

37 Counsel for the plaintiff indicated that its case with respect to Mr Ippoliti's liability as a constructive trustee rested particularly on the financial position in which Mr Ippoliti found himself prior to the purchase of the Albany Property. He had then indicated to Ms Mackaway that he needed "help" with his car loan, and, as I have previously indicated, she had suggested he invest in property (Mackaway affidavit, par 9). Counsel for the plaintiff put it to me that his participation in an acquisition of the Albany Property subsequently showed he was aware or ought to have been aware that a "scheme" was involved to make his acquisition of it possible. This scheme involved the sale of the property by the plaintiff at an undervalue and without the full proceeds of sale being received by the caveator at settlement, the shortfall representing the amount for the purchase price he was not able to find from third party sources or his own resources. The evidence for his awareness of a scheme with those features appears to be the evidence of a sale at an undervalue and of settlement with a shortfall as I have described that evidence, combined with evidence of his mother's role in suggesting to her son he invest in real estate to which I have previously referred, and her having "organised the whole sale and settlement [of the Albany Property]" (Greenway, further affidavit, par 5), as well as the evidence on the balance of the proceeds of Mr Ippoliti's sale of the Albany Property going to his parents, which I reach below. I also note that in Mr Ippoliti's affidavit of 15 February 2006 he deposes that "[e]ither my mother or Greenway suggested I pay about $100,000" for the Albany Property (Ippoliti's affidavit of 20 January 2006, par 5).

38 This body of evidence is not, in my view, a strong case of knowledge or constructive knowledge on which to found a constructive trust within the "first limb", or recipient liability, of Barnes v Addy (1874) 9 Ch App 244, as explained in Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373, per Stephen J, at 412, as follows:

"If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust the case may well be different, as it clearly will be if the defendant has consciously refrained from inquiry for fear lest he learn of fraud. But to go further is, I think, to disregard Equity's concern for the state of conscience of the defendant."

39 I note the evidence of payment of $34,000.00 from the proceeds of the sale of the Albany Property by Mr Ippoliti in 2001 as monies "returned" to his "Parents" might be regarded as providing some support for the contention that Mr Ippoliti borrowed the $28,252.50 from Ms Mackaway and Mr Greenway. However, I note that Mr Ippoliti does not directly make any such claim, and in any event his counsel did not seem to rely strongly on the payment as support for it. That seems to me to be appropriate, as the evidence is in my view somewhat equivocal on the point, and indeed might be pointed to as support for the participation by Mr Ippoliti with his "Parents" in the "scheme". For this purpose I note that Mr Greenway denies having "personally" received any part of the $34,000.00 (his further affidavit of 6 February 2006, par 6).

40 Counsel for Mr Ippoliti rather put it to me that it is enough that Mr Greenway acknowledged, as he did, that he provided Mr Ippoliti with a cheque in the amount of the shortfall. Thus, it is said, the essential basis both for showing a breach of director's duties in causing a settlement involving a shortfall of funds, and for Mr Ippoliti's knowledge or a reason to know put forward in the case for the plaintiff resting on a shortfall in settlement proceeds, falls away, on the evidence for the plaintiff itself.

41 However, I have indicated how I view the evidence as to the cheque. While I consider that that evidence, with the lack of evidence from Mr Greenway as to whether or not its proceeds were ever credited to the plaintiff, does indeed weaken the strength of the case that there was shortfall, there remains a serious case to be tried in that respect, as I have indicated.

42 On all of the evidence to which I have referred, I have concluded that that there is a serious case to be tried that Mr Ippoliti held the Albany Property as constructive trustee under the first limb of Barnes v Addy, based on knowledge or constructive knowledge. However, in my view it is not a strong case.

43 At the same time, I note that the case for the plaintiff goes further, to the position that, even without any form of knowledge, Mr Ippoliti could nonetheless be held to have been a constructive trustee in respect of the Albany Property on what might be called restitutionary, or unjust enrichment, grounds.

44 There is strong support for such an approach to the first limb of Barnes v Addy in See-Day Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309, per Tobias JA, Mason P and Giles JA agreeing, at [223] to [233]. His Honour indicates (at [226]) there are cases, including Hancock Family Memorial Foundation Ltd v Porteous [1999] WASC 55; (1999) 151 FLR 191, Anderson J, affirmed [2000] WASCA 29; (2000) 22 WAR 198, Ipp, Owen and McKechnie JJ, which have approached the limb on the "conventional basis of the necessity to prove actual or constructive knowledge by the recipient of breach of trust", without having "to grapple with the proper rationale upon which recipient liability should be founded".

45 Counsel for Ippoliti submitted to me that in fact it is not open to a member of the court at my level to depart from the "conventional basis". However, it seems to me that in light of the analysis in Tobias JA's judgment in See-Day to which I have referred, I should be slow to come to that conclusion, without the benefit of more argument than could be accommodated in proceedings of this kind. I note in that respect the analysis, for interlocutory injunctions, in Owen J, "The Interlocutory Injunction" (supra) at 256 - 257. I would not conclude that there is no possibility for the restitutionary argument to be made good in the proceedings already begun to establish the plaintiff's caveatable interest.

46 Counsel for Ippoliti put it to me that in any event See-Day, where restitutionary liability was an alternative ground for the decision, could be distinguished as there those held liable were not purchasers for value, and they retained the original property. However, it is not evident to me that the absence of the latter feature would prevent a finding of restitutionary liability if tracing were possible, while the evidence of value here, if put as incurring a liability for the balance of the purchase price of the Albany Property to his "Parents", is not, put at its lowest, unequivocal, as I have explained, assuming that liability to the person in breach of the relevant duty is capable of being "value" in this context. However, the incurring of liability on a mortgage of the Albany property would not seem to me to be unarguably "value" in this context: see Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440.

47 It thus seems to me that there is a serious question to be tried as to the constructive trust on the Albany Property deriving from a restitutionary analysis. Assessing its strength is difficult, however, in view of the novelty of that approach in this Court.

48 This brings me to the final part of the plaintiff's case, which is that the plaintiff can trace in equity into the Subiaco Unit. For that purpose, the mortgage on the Subiaco Unit does not give Mr Ippoliti a claim that would qualify the plaintiff's entitlement: Davies (supra). Nor was it suggested to me that there was any barrier (laches and acquiescence aside, to be reached in the next section of these reasons) to the plaintiff claiming an interest by tracing into the Subiaco Unit, except that which I reach next.

49 Counsel for Ippoliti put to me that tracing was not now possible as Mr Ippoliti had innocently changed his position, and rights of a third party had intervened.

50 Mr Ippoliti's change of position was represented by his acquisition of the Subiaco Unit, and his subsequent entry into a contract to sell it. I have already referred to this contract, its due date for settlement and the accruing of penalty interest for failure to settle.

51 The third party concerned is Ms Toni Griffith, who at all material times was as I have previously indicated Mr Ippoliti's de facto partner. She had lived with him in the Subiaco property from the day his purchase of it was settled, in April or May 2001, to the beginning of 2003, when Mr Ippoliti went overseas for a year, and Ms Griffin moved to Canberra. During that period, Ms Griffin contributed $50 a week towards the weekly payments of $110 on the mortgage on the Subiaco Unit. She may well have rights arising out of those payments, it was said, on Calverley v Green [1984] HCA 81; (1984) 155 CLR 242.

52 There is support for a defence to tracing in equity of innocent change of position, although the matter is not free of controversy: Meagher, WP and Gummow, WMC, Jacobs' Law of Trusts in Australia, 6th ed, Sydney, Butterworths, 1997, at [2715]; see also In re Diplock [1948] Ch 465 (CA), at 545 - 550. Of course, if Mr Ippoliti had knowledge or constructive knowledge for the purposes of the constructive trust on the Albany Property, he would not (laches and acquiescence aside) seem to be able to innocently change his position. I have already indicated why I have concluded there is a serious question to be tried in respect of his knowledge or constructive knowledge.

53 The matter of whether Ms Griffin acquired an interest in the Subiaco Unit is not a straightforward one: unlike Calverley (supra), it is not suggested here that Ms Griffin was liable on the mortgage on the Subiaco Unit. It might also be suggested that her interest would be postponed to the plaintiff's, which was prior in time. In any event, it is not clear to me that her acquisition of an interest would prevent the plaintiff tracing into the Subiaco Unit. Rather, it might mean that any interest so acquired would be qualified by Ms Griffin's interest.

54 For these reasons I have concluded there is a serious question to be tried as to the tracing of the caveatable interest claimed by the plaintiff in the Albany Property into the Subiaco Unit.

55 The consequence of my conclusions under the present heading is that there is a serious question to be tried as to whether a caveatable interest exists, within the meaning of the authorities on s 138C of the Act concerning the approach to be taken to the words in s 138C(2)(a) "the caveator's claim has or may have substance". However, there are some weaknesses in the case put forward, account for which needs to be taken in considering the next matter, of the Court's discretion, (notwithstanding the establishment of such a serious question) whether to make an order granting relief under the provision: Macedonian United Society (supra), Barker J, at [74] - [75]; and Owen J, "The Interlocutory Injunction" (supra), at 254 - 255.

56 Counsel for Ippoliti put it to me that the equitable defences of laches and acquiescence were engaged here, and thus, whether or not there was otherwise a serious case to be tried as to the existence of a caveatable interest, the interest of the plaintiff would be defeated by those defences. See Meagher & Gummow (supra), at [36-030] on the invocation of laches to defeat an equitable interest.

57 In any event, the matters relevant to the establishment of such defences went to show that this was an "unusual" case in which the balance of convenience would, notwithstanding the nature of a caveat, cause the refusal of any relief under s 138C.

58 A widely quoted definition of laches is that in Spry, ICF, "The Principles of Equitable Remedies", 6th ed Lawbook Co, Pyrmont 2001, at 431):

"The defence of laches arises if two conditions are satisfied: first, there must be unreasonable delay on the part of the plaintiff in the commencement or prosecution of proceedings, and secondly, in view of the nature and consequences of that delay it must be unjust in all the circumstances to grant the specific relief that is in question, whether absolutely or on appropriate terms or conditions."

59 Here, the delay pointed to was one in asserting the plaintiff's rights as early as soon after settlement, where there was evidence, both that Mr Greenway, as the company's only director remaining in office, had, as I have already indicated, previously been informed of the value put on the Albany Property by Ms Mackaway of $125,000, and that Mr Greenway was also aware of the circumstances of settlement, which would, as I understood the point, at least have given rise to a duty to inquire promptly into the flow of funds to the plaintiff.

60 It was put to me by counsel for the plaintiff that any knowledge of the sort attributed to Mr Greenway should not necessarily be attributed to the plaintiff. I agree. Knowledge of a director will be attributed to a company when that director is the directing mind and will of the company: Austin, RP and Ramsay, I, Ford's Principles of Corporations Law, loose-leaf, at [16.200]. On the evidence to which I have referred in relation to Ms Mackaway as a de facto director, it is not clear that Mr Greenway was the directing mind and will of the company, notwithstanding his position as its sole director remaining in office. Knowledge of a director will also be attributed to a company when that director had authority to receive and communicate that information to the company: Ford's Principles of Corporations Law, at [16.190]. However, unless the director was engaged by the company to inquire as to the information in question, knowledge acquired privately will not be attributed to the company: Ford's Principles of Corporations Law, at [16.210]. It might be argued (albeit not without with some difficulty) that the knowledge in question here, including the knowledge of circumstances giving rise to a duty to inquire, was acquired privately without a duty to inquire on behalf of the company, as a result of the family relationship between Mr Greenway, on the one hand, and Mr Ippoliti and Ms Mackaway, on the other.

61 In considering the delay in this case, it is also necessary to note that there was also the delay in asserting the plaintiff's rights subsequently, over the period beginning no later than 13 December 1999, when there was settlement on the sale of the Albany Property (if not earlier, in September 1999, when the contract for its sale was entered into), to 8 November 2005, when the Caveat J501701 was lodged with the Registrar of Titles. In considering whether that delay is unreasonable, I need to consider any explanations for it. However, as counsel for Ippoliti reminded me, there is no explanation for that delay on the materials before me.

62 Putting aside the question of knowledge, it seems to me that, on the material before me, it is strongly arguable the delay of about six years in this case was unreasonable.

63 However, delay, no matter how unreasonable, is not sufficient of itself for laches to be made out: Spry (supra) at 431; Meagher & Gummow (supra), at [36-070] to [36-080]. That brings me to a consideration, in view of the nature and consequences of the delay, of whether or not it would be unjust in all the circumstances to grant the specific relief that is in question, whether absolutely or on appropriate terms or conditions.

64 Counsel for Ippoliti referred me to the following circumstances which he said made it unjust to grant the relief sought:

• Mr Ippoliti had acquired the Subiaco Unit, in 2001, and then agreed to sell it in 2005, on terms that included penalty interest for late settlement;

• Ms Griffin had contributed to the mortgage on the Subiaco Unit, as I have indicated; and

• The relief sought in CIV 2397 of 2005 included a claim for the balance of the purchase price payable by Mr Ippoliti for the Albany Property that appeared to be statute barred at common law.

65 The last matter was not pressed before me, and, to the extent it rests on the expiry of six years since the breach of contract in failing to pay the purchase price, and given the date of settlement of the sale of the Albany Property to Mr Ippoliti, it is not clear to me that the six year period for such actions has expired. Nor is it clear to me why it should defeat the equitable interest, which is not it seems to me to be viewed as if it were a security interest in respect of a debt obligation.

66 As to the first matter, of Mr Ippoliti's successive dealings, there is indeed support for the view that the trustee's resale may in circumstances of delay make it unjust for the cestui qui trust to have their interest recognised: see Lamshed v Lamshed [1963] HCA 60; (1963) 109 CLR 440; and Meagher & Gummow (supra), at [36-020]. However, that support appears to rest on the view that the person sought to be made liable was acting reasonably in reliance on the claimant's delay. While there are circumstances pointing to such reliance, on the plaintiff's case as to Mr Ippoliti's knowledge, the case is not so clear on the plaintiff's case as to his constructive knowledge. Laches is not in my view so clearly made out that all relief should be denied under s 138C.

67 As to the second matter, of Ms Griffin's contributions, the interests of innocent third parties are indeed relevant to laches: see Meagher & Gummow, [36-020]. I have already noted, however, that it is not clear Ms Griffin would take an interest in the Subiaco Unit by virtue of her contributions to the mortgage over it. In any event, it seems to me that relief might be on terms to allow for that interest.

69 A statement of the defence is in Spry (supra), as follows, at 440:

"First, there must, on the part of the plaintiff, be an assent or lying by in relation to the acts of another person; and secondly, in view of the assent or lying by and consequent acts it must be unjust in all the circumstances to grant the specific relief that is in question."

70 The defence may overlap with laches: see Meagher & Gummow (supra), at [36-090]. Its distinctive form appears to be where the plaintiff's conduct was over a long period of time, was with "full knowledge of his rights", and was such that it is proper to infer from it that he had abandoned those rights: [36-090].

71 For the reasons I have set out earlier, it is not clear to me that the plaintiff had the relevant knowledge for the purposes of this defence. Therefore, it seems to me that the defence of acquiescence is not so clearly made out as to make it appropriate to deny the plaintiff all relief under s 138C.

72 As I have indicated, counsel for Ippoliti put it to me that, even if neither laches nor acquiescence was made out, the length of the delay, coupled with the conduct of Mr Ippoliti and of Ms Griffin relevant to those defences and to which I have referred, were circumstances that made this an "unusual" case for which the balance of convenience was telling against any relief under s 138C.

73 The only authority in which there was a finding of such a case to which I was referred was Macedonian United Society (supra). There, the extension of the caveat would have prevented the registered mortgagee exercising its power of sale under a mortgage granted by the caveator, "the Church". Barker J found there was a serious question to be tried as to the existence of a caveatable interest arising out of the circumstances in which the caveator had transferred the property in question to its successor in title as registered proprietor, "the Society", a question that arose as between the Church and the Society. He also found, as between the mortgagee and the Church, it was, "perhaps, arguable" that conduct of the mortgagee's, in facilitating a transfer of the property from the Church to the Society when it was on notice not to do so in the circumstances the mortgagee faced, was such as to entitle the Church to "impugn" the right of the mortgagee to exercise its power of sale under the mortgage (at [74]). However, Barker J also found the case was "unusual" because none of these matters would have prevented the mortgagee executing its power of sale as against the Church, and would prevent it doing so as against the Society (at [83]).

74 The case here is some distance from Macedonian United Society. If there is the caveatable interest claimed, and it is not defeated by laches or acquiescence, it is enforceable against Mr Ippoliti and is superior, because prior in time, to any interest of Ms Griffin's.

75 Notwithstanding that there are the weaknesses in the case for the caveatable interest to which I have referred, it seems to me, as I have said, that there is a serious case to be tried as to that interest. I am satisfied that this case, even with those weaknesses, does not present as one with features that would justify, on the balance of convenience, permitting the registered proprietor (Mr Ippoliti) to dispose of the Subiaco Unit free from any practical obligation to account to the caveator for the proceeds of sale (Ravi Nominees, (supra), per Owen J, at 50, quoted in Macedonian United Society, per Barker J, at [29]).

Should the Court order other relief than an extension of the caveat?

76 The last conclusion brings me to this question. As I have indicated, s 138C(2)(c) of the Act, as recognised in Pindan (supra), per Murray J at [9], allows for relief to be moulded other than by way of extension of the caveat, where, as Murray J there indicated, a "good reason" to "sacrifice" the caveatable interest has not been shown. I did not understand there to be any disagreement that such relief was not open in this case. However, the caveator took the position that an order simply for the extension of the caveat was appropriate.

77 In my view, if there is an ancillary order to an order refusing the extension of the caveat which would adequately protect the caveator's interest, then, in the circumstances of this case, and in particular on my assessment of the strength of the caveator's case for a caveatable interest, such an order would be an appropriate exercise of my discretion under s 138C. Indeed, counsel for Mr Ippoliti indicated to me that, if I reached a conclusion of the sort I have here outlined, he would wish to address me on what order or orders I might appropriately make.

78 Is there then an ancillary order of the sort I have referred to which I can envisage?

79 It is not in contest before me that the mortgagee of the Subiaco Unit has a first claim on the proceeds of its sale. From the further affidavit of Mr Ippoliti sworn 14 February 2006, it appears that the Commonwealth Bank, the mortgagee of the Subiaco Unit, has indicated that, in order for his loan balances to meet the Bank's "lending criteria", an amount of approximately $114,000 is required, from the proceeds of the sale of the Subiaco Unit. The principal outstanding on the original mortgage on the Subiaco Unit is $60,000. I do not have any material before me to indicate the nature of any security in favour of the Bank for the $54,000 balance, which is in respect of the loan and line of credit for the Sydney property I referred to earlier, but which is less than the total outstanding on those accounts. For the sake of the analysis that follows, I will assume that the balance of $54,000 is secured on the Sydney property.

80 In those circumstances, an ancillary order in this case might be directed to the balance of the proceeds of the sale of the Subiaco Unit, and to the Sydney property, in respect of which Mr Ippoliti used his equity in the Subiaco Unit as security. An order might be made dismissing the application for an order extending the caveat on the Subiaco Unit, J501701 but with an ancillary order that provided for the payment of the balance of the proceeds of the sale of the Subiaco Unit, after the payment to the Commonwealth Bank stipulated for by the Bank, into a trust account for the benefit of the parties, pending the resolution of the issue of the interest claimed against Mr Ippoliti or further order. This ancillary order might be on terms that Mr Ippoliti consent to a caveat being lodged against the Sydney property in respect of an interest to the extent of the amount paid down on the indebtedness in respect of that property from the proceeds of the Subiaco Unit.

81 However, whether this order, particularly in respect of the Sydney property, would be sufficient protection for the interest of the caveator in this case, or another ancillary order would be appropriate, requires further submissions from the parties.

82 I have concluded there is a serious question to be tried that the plaintiff has the caveatable interest it claims. Thus for the purposes of Act s 138C(2)(a) I am "satisfied that the caveator's claim has or may have substance", and my discretion to make an order or orders under that section is enlivened.

83 I have also concluded that this is not an "unusual" case such that, on my assessment of the balance of convenience, I should conclude, in the exercise of my discretion under the section, there is a good reason to sacrifice the protection of the plaintiff's caveat by denying the plaintiff any order under s 138C.

84 However, in my view there are some weaknesses in the plaintiff's case for a caveatable interest. In the light of those weaknesses, I have concluded that, if there is an ancillary order to an order dismissing the application for the extension of the caveat which would adequately protect the caveator's interest, then such an order would be an appropriate exercise of my discretion under s 138C. I have indicated there might indeed be such an order. However, I have also indicated that I need to hear further submissions on that point.

85 I invite the parties to make those submissions to me.

Multan Pty Ltd v Ippoliti & Anor [2006] WASC 130

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Judgment (133 paragraphs)

Multan Pty Ltd v Ippoliti & Anor [2006] WASC 130 (29 June 2006)

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Cases Cited (11)