Plaintiff v Defendant

2 The registered proprietors of the property are Judith Anne Evans, who is the plaintiff in this proceeding, who gives as her address 41 Northcote Road, Armadale, and her former husband, Raymond John Evans, who is recorded in the title as having an address at 186 Walsh Street, South Yarra.

3 A caveat in this matter was lodged by Advertising, dated 16 February 2004 against a number of properties, which included the subject property at 41 Northcote Road in Armadale. The estate or interest claimed by Advertising in that caveat was an equitable interest as chargee. The grounds of the claim were described as follows:

Pursuant to a charging clause in an acknowledgement of loan dated 12 January 2004 between the Advertising Department Pty Ltd and Ray Evans.

5 The agreement for the loan, which was the subject of the alleged caveatable interest and is said to have given rise to it, is a document entitled "Acknowledgement of Loan". It was entered into on 16 January 2004 between Advertising, as the lender, and Raymond John Evans, Ms Evans' former husband, as the borrower. The lending limit was AUD$200,000.

6 Pursuant to clause 9 of that Acknowledgement of Loan, the following was provided for the "Security" for the loan to Mr Evans:

It is a term of this agreement (and a condition subsequent to the Lender making the Initial Advance) that the Borrower shall procure and maintain until the Lender shall have received 100 cents in the dollar of the Redemption Sum, in a form acceptable to the Lender such legally enforceable (and registered if so required) mortgages, guarantees and/or indemnities and other securities for payment of the Redemption Sum or any part thereof as are, in the Lender's unfettered discretion required by the Lender, and that all obligations required to be performed by any party with respect thereto are duly and punctually performed.

The Borrower acknowledges the Lender's caveatable interest in respect of the redemption Sum under this agreement and confirms the Lender's rights and entitlements to lodge such caveats in respect of the Redemption Sum until the Lender shall have received 100 cents in the dollar of the Redemption Sum.

7 The word "property" was defined in the agreement as follows:

The vessel known and registered in Victoria as the Oriental Queen I and having the registration identification number of MB10018 and such other assets taken by security of the Lender under the provisions of clause 9 over the term.

8 Purportedly pursuant to clause 9 of the loan agreement, Advertising lodged its caveat over the property. Ms Evans seeks the removal of that caveat. She says that there was no proper basis for the lodging of a caveat under clause 9 of the loan agreement. She says this because, first, the clause was too uncertain to give rise to a charge which would be a caveatable interest and by reason of the uncertainty, the clause was unenforceable. Second, she says that the security clause at best was an agreement to agree and was, for that reason, not enforceable and third, she says the precondition of the security clause was not met, or at least there was no evidence of it ever having been met, that precondition being that there was a requirement for the lender to require the lodgement or preparation or such legally enforceable, and registered if so required, mortgages, and guarantees or indemnities or other securities as security for payment of the sum the subject of the loan.

9 Ms Evans claims further that she owned the property as its beneficial owner in her own right pursuant to her entitlement to have a constructive trust declared in her favour in respect of the interest in the property which was legally owned by her former husband, Ray Evans, and that her equitable interest ought to not be postponed to the interest of Advertising by her failure to lodge a caveat in respect of her interests. She says her beneficial interest in respect of the property extends to the entire beneficial interest in that property.

10 Ms Evans seeks an order pursuant to s.90(3) of the Transfer of Land Act 1958, that the caveat lodged by Advertising on the Certificate of Title in respect of the property be removed. Section 90(3) provides that any person who is adversely affected by any such caveat may bring proceedings in the Court against the caveator for the removal of the caveat, and the Court may make such order as the Court thinks fit.

11 The principles relating to applications under s.90(3) are well-known. Broadly, they are as follows: first, the Court has a wide discretion under s.90(3): Commercial Bank of Australia v Schierholter[1]. Second, the onus is on the caveator to justify the maintenance of the caveat: Lewenberg & Pryles v Direct Acceptance Corporation Ltd[2]; Bell v Graham[3]; McMillan v Dunoon[4]; and Austwide Property & Developments Pty Ltd v Vukasinec[5]. Thirdly, the caveator must persuade the Court that there is a serious question to be tried as to the existence of the interest claimed to support the caveat. If there is a serious question to be tried, the Court will not normally order the removal of the caveat on the basis of affidavit evidence unless the balance of convenience favours removal: Gibson v Co-ordinated Building Services Pty Ltd[6]; Mitrangas v Makalias[7]; Lawrence v Appleby[8]; Austwide Property & Developments Pty Ltd v Vukasinec[9].

12 Ms Evans deposed in her affidavit to her present circumstances. The following was deposed to: In or around 2006 at the age of 60 Ms Evans was diagnosed with Parkinson's disease. She had started suffering from it a few years beforehand. Since then her condition has deteriorated and she is significantly disabled. Currently, her symptoms include shaking, speech difficulties, and memory loss. She also suffers from a chronic severe migraine and depression. She is taking several medications to treat her condition but she understands they cannot cure it, only delay the onset of the disease. On or around 14 May 2009 she was diagnosed with breast cancer following a medical check-up which revealed a lump on her breast. She has had two operations to remove the malignant tumour and her medical treatment is ongoing and will continue for some time.

13 She also deposed in her affidavit that on 4 January 2007 there was a mortgage over the property to St George Bank Ltd ("the bank") to secure a loan. The bank served a notice of default under its mortgage. In mid 2007, the bank commenced a proceeding in this Court seeking an order for possession of the property. On 5 March 2008, Ms Evans commenced a proceeding in VCAT seeking orders setting aside the bank's mortgage as unjust under the Consumer Credit Code. Her former husband, Mr Evans, also commenced a proceeding in VCAT seeking similar orders.

14 In March 2009, the bank, Ms Evans, and her former husband entered into a confidential settlement deed under which her husband and Ms Evans were required to sell the property by 5 June 2009 and pay part of the proceeds to the bank. The settlement deed refers to both Ms Evans' former husband and herself as the sellers of the property because they were both shown as the registered proprietors on the title.

15 However, it is Ms Evans' responsibility, so she said, to sell the property and it will be she who is entitled to the proceeds after the bank is paid out.

16 She deposes further that as a result of her diagnosis of cancer and the medical treatment required, her solicitors requested an extension of time for her to sell the property. In June 2009, the bank, her former husband and herself entered into a variation of deed of settlement and release under which the date by which Ms Evans is required to sell the property was extended to 15 December 2009. Under the deed of variation, if the property is not sold by then, the bank is entitled to obtain an order for possession and to sell the property in the way that it wishes. It will also be entitled to certain costs.

17 Ms Evans expects that she will sell the property at a higher price than if the bank were to sell the property, and that if the bank sells the property, her net proceeds will be lower than if she were to sell it. She intends to use the sale proceeds to meet the costs of her ongoing care and medical treatment.

18 She further deposes that the caveat prevents the registration of any dealings with the property, including the transfer of title to any purchaser under the contract of sale which, under the deed of variation, is required to be made on or before 15 December 2009.

19 As at the date of this proceeding, the caveat remains recorded on the register of titles in respect of the property. The caveator, Advertising, has failed or refused to withdraw the caveat and has not lodged for registration a transfer or dealing that is to pass to the caveator upon being registered in the estate or interest that the caveator may claim in the property.

20 Ms Evans also deposes that she is preparing the property for sale at the present time which involves some refurbishment. She is concerned that if the caveat remains on the register of titles, it may turn away prospective purchasers and ultimately result in a lower price for the property. At the worst, the property will not be able to be sold and then the bank will take over the sale process which, she says, will result in loss to herself.

21 The caveator, Advertising, relies, for the foundation for its claim, upon clause 9 of the loan agreement which it says gives the right to lodge the caveat pursuant to an equitable charge which it says is thereby created in respect of the property.

22 An equitable charge is created when property is expressly or constructively made liable to the discharge of a debt or some other obligation, and the charge confers on the chargee a right of realisation by judicial process such as a sale order: see Swiss Bank Corporation v Lloyds Bank[10]; Re Cosslett (Contractors) Ltd[11]. Gillard J summarised the essence of an equitable charge in the following terms in AVCO Financial Services v White:[12]

An equitable charge for a debt is a security whereby only a right to payment of the debt out of the property is conferred by the owner of the property to the holder of the security. The remedy of the holder of the security on default and payment of the debt was to apply to a Court of equity to have the property sold and the proceeds paid into Court.

23 There is no required form for an equitable charge. However, the instrument must indicate the party's intention that the relevant property should constitute a security: AVCO Financial Services Ltd v White[13] in which Gillard J citing Romer J in Cradock v Scottish Provident Institution[14] said:

To constitute a charge in equity by deed or writing it is not necessary that any general words of charge should be used. It is sufficient if the Court can fairly gather from the instrument an intention by the parties that the property therein referred to should constitute a security.[15]

24 In AVCO Financial Services v White,[16] this Court was called upon to determine whether a written loan agreement to fund the purchase of a property created an equitable charge over the property of the borrower. The agreement included the following clause:[17]

As further security for the payment of the loan and interest, I agree ... to charge (as beneficial owner) all freehold and leasehold interest in the land which I may now have or during the currency of the loan may require.

25 It is to be noted from this clause that what was defined was a class of property which was to be the subject of the charge.

26 In the course of this application, McMillan v Dunoon[18] was referred to. There the defendant relied on a clause in the loan agreement which provided as a precondition of the loan advanced that the borrower provide the lender with security which was particularised in item 7. Item 7 of the schedule of the loan agreement in that case provided:[19]

1. Security. Deed of charge over the land situated at lot 35 on Plan of Subdivision 001763 Certificate of Title volume 06916 folio 019 guarantee of the debt by Gregory Nicholls.

27 It was observed by Gillard J in McMillan v Dunoon[20] that clause 4 of the agreement was also relevant. That clause provided:[21]

1. The borrower shall at any time when called upon in writing by the lender to make and execute to the lender a legal mortgage in fee simple to contain all such usual and proper covenant clauses and provisions as the lender's solicitor may require on land being Certificate of Title volume 6916 folio 019 to better this debt.

28 Thus in McMillan v Dunoon,[22] precise property was referred to in respect of which the charge was said to arise.

29 In Re Cosslett (Contractors) is also cited where Millett LJ held:[23]

It is of the essence of a charge that a particular asset or class of assets is appropriated to the satisfaction of a debt ... so that the chargee is entitled to look to the asset and its proceeds for the discharge of the liability.

30 However, in Australia, precise definition of the property to be attached is not an invariable requirement for an equitable charge.

31 Clause 9 of the loan agreement in this case is widely cast. It refers to no specific property or class of property to which the security will apply. However, when read in conjunction with the definition of the word "property" contained in the dictionary to clause 14, the vessel "known and registered in Victoria as the Oriental Queen 1 and having the registration identification number of [MB 10018] and such other assets taken as security by the lender under the provisions of clause 9 over the term", may be taken to be included in the securities contemplated in clause 9. At least, the vessel is specified as security property. Nevertheless, is clause 9 such that it should be treated otherwise as meaningless, illusory or void for uncertainty?

32 A contractual provision, especially in a commercial contract, will not be held void for uncertainty except in a most extreme and intractable case: Murphy and Anor v Wright [No 2].[24] Barwick CJ described the position in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd[25] where his Honour said in a well known passage:[26]

But a contract of which there can be more than one possible meaning ... is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the Courts ... decide is its proper construction: ... The question becomes one ... of ascertaining the intention of the parties ... So long as the language employed by the parties, to use Lord Wright's words in Scammell v Ouston is not "so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention" the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention be resolved.

33 The present clause 9 of the agreement under consideration may be compared with the clause considered by the New South Wales Court of Appeal in Murphy and Anor v Wright.[27] There, clause 12 of the agreement was in the following form:[28]

Twelfthly - In the event of default by the Borrowers in payment of moneys due under the Security Documents or in performance or observance of any covenants therein then the Lender shall in addition to the rights set out herein or in the Security Documents be entitled to attach the debt due to any of the assets of the Guarantor or Guarantors whether such assets be real or personal and further the parties hereto agree that in the event of such default the Lender may register a caveat against any property registered in the name of any or all of the Guarantors until the Moneys Secured are repaid.

34 The majority held that the clause 12 contemplated that some act of the lender was required to attach the debt. As Handley JA observed:[29]

The language is not felicitous because the voluntary attaching of a debt to property requires some act by its owner but the clause contemplates that an act of the Lender will have this effect. However the Guarantor has agreed that the Lender may do this act. In my opinion the clause should be construed as an attempt to confer on the Lender an option which can be exercised on default. The Guarantor has agreed that in that event the Lender may attach the debt to any of her assets. The attachment of a debt to property by agreement is apt to create an equitable charge.

It was held that the option, when exercised by the lender, would create an equitable charge over the subject property.

35 In the present case, the entitlement of the lender, under clause 9, such that it is, is to be granted on "unfettered discretion" to take such security as it thinks fit and in such form as it thinks fit. The entitlement arises not on default, but upon entry into the agreement, and remains until the loan is paid out in full. Further, pursuant to the "entitlement", the lender has the right to register a caveat on real property which is Torrens Title land owned by the borrower or made available to the borrower for the purpose of securing the loan.

36 In my reasons delivered ex tempore on 2 December 2009 following the hearing of argument in this matter, I expressed the opinion that clause 9 of the loan agreement was too uncertain to give rise to any equitable or legal interest in the property in favour of Advertising. I have reconsidered that view. In my opinion, clause 9 of the agreement gives to the lender an entitlement, so long as moneys are outstanding under the loan, to claim an equitable charge over Torrens Title land owned by the borrower during the currency of the loan. This entitlement may be exercised by the lender lodging a caveat against such property, as was done in this case. Clause 9 manifests an intention of the parties to achieve this consequence, and the agreement when read as a whole shows an intention by the parties to it that, at least Torrens Title property owned by or made available to the borrower during the currency of the loan, could constitute security for the loan, and would do so once a valid caveat was lodged in respect of such property.

37 In this regard, reference is also made to Crampton v French,[30] where the clause in question read:[31]

In the event that the borrower defaults under this agreement, the borrower authorises the lender to lodge any necessary caveat against the property known as 28 Portland Street, Mulgrave to better secure the amount outstanding, including any interest.

38 The strongest authority relied upon by the caveator, Advertising, in this case was the New South Wales case of Troncone v Aliperti[32] where the clause in question simply read:[33]

The debtor authorises the creditors to lodge a caveat on any property owned by the debtors to protect his interest.

39 It may be noted that the clause considered in Troncone v Aliperti[34] resulted in a finding that an equitable charge arose. Young J in Eq commented in Troncone v Aliperti[35] in Iaconis v Lazar:[36]

The current commercial enthusiasm for this sort of clause in a contract and for lodging a caveat was given a great boost by the decision of the Court of Appeal in Troncone v Aliperti (1994) 6 BPR 13,291. This decision has often been interpreted by persons seeking charges as meaning that every time there is an agreement that X can lodge a caveat over any property Y may own, that an equitable charge is created. It should be remembered, as McLelland CJ in Eq said in Coleman v Bone (1996) 9 BPR 16,235 at 16 and 239, that the true principle is that "Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money".

40 In my opinion, clause 9 of the loan agreement in this case, which is relied upon by the caveator, was capable of giving rise to an equitable charge in the property in favour of Advertising upon the lodging of the caveat.

41 However, the material adduced by Ms Evans in her affidavit, prime facie, establishes that she has an equitable interest in the entire beneficial estate of the property. She has a beneficial interest in that estate arising out of a constructive trust and she would be entitled to a declaration from the Court to this effect.

42 In this regard, it is to be noted that Ms Evans swore in her affidavit that her husband purchased the property on her behalf in the first half of 1997. He gave her a copy of a trust instrument which he signed on 27 June 1997. She thought that the wording of the trust instrument was odd as, she says, they both intended that the house would be hers. She asked her husband what that meant. He said that his lawyer advised him to sign the trust deed so as to make her the owner of the property, but so that his name still appears on title as that is what the bank required. He assured her that the house was hers as she owned one half and he held the other half on trust for her.

43 She says that in about 2003 she became increasingly concerned that her husband appeared as the only registered proprietor of the property. In mid 2003, her husband and she attended the offices of her husband's lawyers, Rotman & Morris. They instructed the solicitors to prepare a transfer of the property to put the property in her name on the title. She says that the solicitors sent them a transfer which they signed at a police station and then they returned it to Rotman & Morris. She says further that they later realised that the transfer was worded incorrectly as it should have shown only her name, not both their names. She says that she asked Rotman & Morris to change it.

44 On 6 August 2003, Rotman & Morris sent a letter to her husband stating that the transfer had been forwarded to the lawyers for the bank and stating that they did not receive what is described as the alternate instructions from Ms Evans or her husband, so the property is recorded in the names of both her husband and herself as joint proprietors. That letter was exhibited to Ms Evans' affidavit.

45 It was submitted that the evidence of Ms Evans was inconsistent with those documents, namely the terms of the trust deed and the transfer. That clearly is the case. However, Ms Evans gave an explanation as to this and was not cross-examined on any aspect of her affidavit in spite of being present in Court, as announced by counsel for the plaintiff at the outset of the case. Accordingly, I accept the evidence of Ms Evans given in her affidavit, there was no cross-examination or challenge made to her directly as to the affidavit other than pointing out that her evidence, as to the creation of her interest and the recording of her interest, was inconsistent with the documents to which I have referred.

46 It was frankly conceded by Mr Kewley, who appeared for Advertising, that if I was to accept the evidence of Ms Evans, then a constructive trust would arise in her favour, as she contends.

47 Mr Ray Evans could only confer upon Advertising the right to lodge a caveat in respect of his interest in the property. That interest was confined to his interest as a constructive trustee of one half of the beneficial estate in the property which he held on trust for Ms Evans as the beneficial owner. The interest claimed in the caveat was an "equitable interest as chargee" and the ground of the claim was stated to be "pursuant to a changing clause in the Acknowledgement of Loan dated 12 January 2004 between The Advertising Department Pty Ltd and Ray Evans". An interest under an equitable charge carries with it the implied right to obtain a court order to realise the property in order to discharge the outstanding debt due to the chargee. This is central to the security constituted by an equitable charge. Given Ms Evans' beneficial interest in the part of the property held by Mr Evans as the legal owner, there was no such implied right. Further, I accept that she gave no permission to Mr Evans to charge any part of her beneficial interest in the property in favour of Advertising and she did not consent to the lodging of the caveat or the creation of any charge over her property. It follows that the claimed interest in the nature of an equitable charge did not arise, and could not support the caveat.

48 I find that there is no serious question to be tried as to the existence of a caveatable interest in favour of Advertising.

49 As to the balance of convenience, no evidence has been advanced by Advertising as to any prejudice it may suffer if the caveat was not to be removed. It is to be noted that clause 9 of the agreement contemplated the potential for multiple securities to be in place to secure the loan that was advanced and there is reference made in the definition of "Property" to the boat as being security, which is specifically identified.

50 No evidence has been advanced that the boat is not sufficient to provide adequate security for the debt. No evidence was advanced as to what that boat is, its condition, its size, or its value or whether it is otherwise encumbered. Further, there is no evidence before me that there are not other securities in place, apart from the boat to secure the loan advances made to Mr Evans.

51 Furthermore, even if Advertising had a caveatable interest in respect of the property, for practical purposes, its security would be worthless in the light of my finding as to a constructive trust in favour of Ms Evans. Advertising would not be in a position to obtain a court order for sale of the property in the absence of consent from the beneficial owner, which is not likely to be forthcoming.

52 In these circumstances I am not satisfied that there is any prejudice likely to be suffered by Advertising if the caveat was to be removed.

53 On the other hand, the existence of the caveat has significant potential to obstruct Ms Evans' rights, which she has deposed to, including the proposed sale of the property which she contemplates in the very near future. The restriction on Ms Evans' right to freely dispose of the property by sale is clearly a significant matter in the balance of convenience in favour of Ms Evans. Accordingly, in all the circumstances of this case, even accepting that there is a serious question to be tried as to the existence of a caveatable interest, I am of the view that the balance of convenience favours the removal of the caveat in this case.

54 For these reasons, the caveat should be removed, and I will make orders accordingly.

[1] [1981] VicRp 32; [1981] VR 292.

[2] [1981] VicRp 36; [1981] VR 344.

[3] [2000] VSC 142.

[4] [2005] VSC 440.

[5] [2004] VSC 333.

[6] (1989) NSW Conv R 55-481.

[7] [2003] VSC 251.

[8] (2002) NSW Conv R 55-933.52.

[9] [2004] VSC 333.

[10] [1982] AC 584 .

[11] [1998] Ch 495.

[12] [1977] VicRp 62; [1977] VR 561 at 563.

[13] [1977] VicRp 62; [1977] VR 561.

[14] (1893) 69 LT 380 at 382.

1. [15] The learned judge's decision in Cradock v Scottish Provident Institution was subsequently affirmed in the Court of Appeal: see (1894) 70 LT 718. See also Wilkinson v Wilkinson (1819) 3 Swan 515 at 527; [1819] EngR 533; 36 ER 958 at 962; Spooner v Sandilands (1842) 1 Y & C Ch C390 at 399.

[16] [1977] VicRp 62; [1977] VR 561.

[17] [1977] VicRp 62; [1977] VR 561 at 562 per Gillard J.

[18] [2005] VSC 440.

[19] [2005] VSC 440 at [8] per Gillard J.

[20] [2005] VSC 440.

[21] [2005] VSC 440 at [9] per Gillard J.

[22] [2005] VSC 440.

[24] [1992] NSWCA 168 per Handley JA at [5].

[25] [1968] HCA 8; (1968) 118 CLR 429.

[26] [1968] HCA 8; (1968) 118 CLR 429 at 435-437.

[27] [1992] NSWCA 168.

[28] [1992] NSWCA 168 per Handley JA at [5].

[30] [1996] ANZ ConvR 156.

[31] [1996] ANZ ConvR 156 at [1] per Harper J.

[32] (1994) 6 BPR 13,291; (1994) NSW ConvR 55-703.

[33] (1994) 6 BPR 13,291; (1994) NSW ConvR 55-703 at [2] per Mahoney JA.

[34] (1994) 6 BPR 13,291; (1994) NSW ConvR 55-703.

[36] [2007] NSWSC 1103 at[23].