Plaintiff v Defendant

1. These reasons concern a dispute about whether the plaintiff or the defendant is entitled to funds held in the trust account of a conveyancer, being the surplus proceeds of sale of a residential property in Camberwell ('Camberwell property'). At the time this proceeding was commenced in December 2024, the funds in trust ('funds') totalled $255,338.65. The funds cannot satisfy the claim made by either party, let alone both.
2. The plaintiff, KKJA Investments Pty Ltd ('KKJA') claims to be entitled to the funds pursuant to a loan agreement and mortgage executed by the former registered proprietor of the Camberwell property, Ms Shuo Bo Feng ('Feng') and her husband ('borrowers'), on 6 December 2021 ('mortgage'). The defendant, Ms Yan Shi, claims an interest in the funds pursuant to a loan agreement between her and Feng dated 3 March 2022 ('loan agreement'), which provided for a charge in favour of Yan Shi over the Camberwell property.
3. The original loan made by KKJA was for the sum of $600,000. The loan made by Yan Shi was also in the sum of approximately $600,000. The best evidence available suggests that at the time the advances were made, the available equity in the Camberwell property was at least $600,000.[1]
4. KKJA took no steps to register the mortgage over the Camberwell property. Neither party took prompt action to lodge a caveat over the title to the Camberwell property. KKJA lodged a caveat on 10 November 2022, 11 months after the execution of the mortgage, and about a fortnight after executing a deed of variation extending the period of the loan from six months to 12 months, and reducing the principal sum of the loan from $600,000 to $550,000. Yan Shi lodged her caveat on 21 November 2022, nearly nine months after the execution of the loan agreement.
5. There is no dispute between the parties that each party holds a valid equitable interest in the funds. It is also agreed that the fact that KKJA held a mortgage over the Camberwell property, albeit unregistered, and that Yan Shi held only a charge does not, of itself, improve KKJA's position in the current dispute.[2] The question in the current proceeding is whether in all of the circumstances the presumption that the first in time interest holder has priority over later interest holders has been displaced.
6. In my view, in all of the relevant circumstances, in particular, the absence of any evidence that there was anything but an arms length relationship between KKJA and the borrowers, the failure of KKJA to register its mortgage or lodge a caveat amounted to postponing conduct. I am also satisfied that Yan Shi suffered detriment as a consequence of KKJA's failure to lodge a caveat to protect its interest in the Camberwell property. Accordingly, KKJA's claim to the funds should be dismissed.

1. In his written submissions, counsel for Yan Shi referred to the decision of Nettle J in Hili Mimi v Millenium Developments Pty Ltd[3] ('Mimi') as accurately summarising the principles governing applications of the current kind. The relevant passage follows:

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. 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.

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:

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.[4]

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.[5]

1. In the case before his Honour, the first in time interest holder was a purchaser of land under a contract of sale, which provided for the construction of a home by a builder to the purchaser's specifications. The purchaser paid the required deposit, but did not lodge a caveat over the title to the property. The purchaser failed to complete the purchase, and the vendor sold the property to another purchaser, on terms which involved the vendor constructing a home for the new purchaser. The new purchaser and its lender searched the title to the property, and found no encumbrances. The new purchaser completed the contract of sale, and, using funds provided by its lender, continued to make progress payments to the vendor for the construction of the home, both before and after the lodgement of a caveat by the original purchaser.
2. His Honour distinguished the position of the original purchaser from the position of the prior interest holder in Jacobs v Platt Nominees Pty Ltd,[6] ('Jacobs') saying:

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.[7]

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.[8]

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.[9]

1. Accordingly, his Honour found that the funds advanced by the subsequent purchaser and its lender on the faith of the register meant that the initial purchaser's failure to lodge a caveat to protect his interests rendered it unconscionable for him to retain his priority.
2. In Double Bay Newspapers Pty Ltd v A.W. Holdings Pty Ltd,[10] ('Double Bay Newspapers') Bryson J considered a priority dispute between three unregistered mortgage holders, in circumstances where the funds in Court could only satisfy the claims of one of them. The first unregistered mortgage was held by the vendor of a business to a company controlled by the registered proprietors of the relevant property ('company'). The mortgage was capable of registration, but it was not lodged for registration (and no caveat was lodged) until nearly two years later, when it could not be registered because of two caveats lodged by the second and third interest holders. The second and third interest holders were trade creditors of the company, who refused to supply goods and services on credit without security, and only advanced credit following representations made by the registered proprietors that there were no unregistered interests over the property, which was confirmed by title searches carried out by them.
3. His Honour observed, in relation to the first in time interest holder:

In evidence [the company] gave very little information about its transactions and relationship with Mr and Mrs Yannacoulacos. [The company] had a contractual entitlement to a second registered mortgage over the house and took a mortgage and variation in registrable forms. No commercial or other reason for omitting to proceed to registration has been shown. [The company] did not lodge a caveat on the title until it lodged caveat U741500 on 28 October 1994 and again there is no evidence establishing any commercial or other reason for not lodging a caveat before then.[11]

1. His Honour also found that there were circumstances which should have alerted the first in time interest holder to the 'financial responsibility' (or lack thereof) of the mortgagors, and that:

In these circumstances [the company's] inaction had become, by 28 October 1993, an unreasonable failure to attend to its own protection and security. If there had not been that failure, Mr Yannacoulacos would have been quite unable to impose on Champion Communications in the way in which he did, his assertion that he was giving Champion Communications a second mortgage would have been falsified and his cheat would have been exposed to Mr Bowring.[12]

1. His Honour held that, in all of the circumstances, the first in time interest holder's inaction contributed to the detriment suffered by the subsequent interest holders, saying as follows:

The strength of [the company's] position is in its holding the earliest in time of the three competing mortgages. Its position has no other strength. For more than two years it was inactive in any way which could have notified others proposing to become interested in the land of its mortgage or restricted the opportunity of Mr and Mrs Yannacoulacos to deal with others: [the company] did not lodge a caveat until long after the other two competing mortgagees had dealt with Mr and Mrs Yannacoulacos, given value and obtained their interests. So far as appears it did not even communicate with the first mortgagee until long after those events. It left its affairs in the hands of solicitors who in some ways acted in the interests of Mr and Mrs Yannacoulacos. It did not so far as evidence shows respond in a vigilant way to the prompting presented by early defaults, except by the transaction of 30 September 1993 which may have been a further advance or may have capitalised money payable in default. In spite of these unmeritorious aspects of its position its priority in time gave it a strong prima facie advantage over any other unregistered mortgagee, and the onus is on persons asserting priority over it to establish grounds for departing from this.[13]

1. Accordingly, while the mere failure to lodge a caveat is not of itself sufficient to displace the presumption that the first in time interest holder has priority, a failure to lodge a caveat may amount to postponing conduct if there are circumstances which indicate the need or desirability of doing so to protect the interests of the first in time interest holder, and where the omission leads to subsequent interest holders suffering detriment as a consequence of acting in reliance upon the absence of any caveat or other registered interests.

1. The evidence regarding the circumstances in which KKJA executed the mortgage is quite scant. KKJA relied upon an affidavit sworn by its solicitor, who deposed and exhibited documents as to the following matters:

(a) KKJA's entry into the mortgage and the deed of variation;

(b) the lodgement of the caveat on the title to the Camberwell property;

(c) that the loan made by KKJA to the borrowers has not been repaid; and

(d) the exchange of correspondence between the solicitors for KKJA and the solicitors for Yan Shi regarding their respective claims to the funds.

1. The loan agreement provided that the loan amount was $600,000, the term of the mortgage was six months, with an interest charge of 1.5 percent per month payable in full at the time of settlement, with a default interest rate of 2.5 percent per month. Accompanying the mortgage was a statutory declaration made by Feng to the effect that she had not created any unregistered or equitable interest in the Camberwell property, along with a statutory declaration by Feng's husband acknowledging that KKJA was not engaged in the business of lending money, and that the funds advanced by KKJA were to be used wholly or predominantly for business and/or investment purposes.
2. Neither the solicitor for KKJA nor the director of KKJA gave any evidence regarding the relationship between KKJA and the borrowers, the circumstances in which KKJA came to enter into the mortgage, the reasons why KKJA failed to register the mortgage, or why KKJA failed to lodge a caveat until some 11 months after acquiring an equitable interest in the Camberwell property.
3. The evidence relied upon by Yan Shi was a little more fulsome.[14] In her affidavit affirmed on 17 April 2025, Yan Shi deposed, in summary, as follows:

(a) she is a retired quantity surveyor, and met Feng's husband, who was the director of a 'famous' developer, Longriver Group Holdings Pty Ltd ('Longriver'), in late 2018;

(b) on 27 January 2022 Feng asked Yan Shi to lend $600,000 to her husband for business purposes, secured by a personal guarantee from her husband and the Camberwell property;

(c) Feng asked Yan Shi not to lodge any instrument on the title of the Camberwell property, because she was in the process of refinancing her mortgage with the ANZ Bank with the Commonwealth Bank;

(d) Feng showed Yan Shi and her daughter documents connected with her refinancing application, including the application form, Feng's credit check, and a rate notice and a title search for the Camberwell property;

(e) the title search for the Camberwell property disclosed no encumbrances upon the Camberwell property other than the mortgage to the ANZ Bank;

(f) she instructed her solicitors to prepare the loan agreement, which was executed by the borrowers on 3 March 2022;

(g) prior to advancing the amount of $598,000 on 4 March 2022, Yan Shi's daughter assisted her to conduct a title search of the Camberwell property, which disclosed no change from the date of the earlier title search;

(h) on 23 March 2022 Feng advised Yan Shi and her daughter that the refinance had gone through, and showed her a title search for the Camberwell property carried out that day which showed the discharge of the ANZ mortgage and the lodgement of the Commonwealth Bank mortgage, and showed no further encumbrances;

(i) Yan Shi contacted the borrowers on numerous occasions after they failed to make full repayment of the loan, during which they acknowledged the debt, but failed to repay it;

(j) in early November 2022 she learned that Longriver was involved in Supreme Court litigation which resulted in Longriver's liquidation;

(k) on 21 November 2022 she instructed her solicitors to issue a default notice and lodge a caveat over the title to the Camberwell property; and

(l) on 17 January 2023 she commenced legal proceedings in the County Court to recover the outstanding debt, which she discontinued in 2024 after receiving assurances from the borrowers that the debt would be repaid, and that the surplus proceeds of sale of the Camberwell property would be sufficient to discharge the debt owed to her.

1. Yan Shi exhibited to her affidavit, among other things, the loan agreement, which provided that the term of the loan was 15 days, the interest rate was one percent per 15 days, the default interest rate was three percent per month, and the security provided was described as a 'caveatable interest' over the Camberwell property.
2. Yan Shi also relied upon an affidavit affirmed by her daughter, Shi He, on 18 August 2025. Shi He deposed, in summary, as follows:

(a) she described her profession as 'financial loan writer', and deposed that since late 2019, she has worked as a mortgage broker. She has contacts with former colleagues at various banks and has a Landata account which she regularly uses to conduct title searches;

(b) while she is not a lawyer, she is familiar with caveats, and understands that there are 'obvious financial risks' when a property is used to secure multiple loans;

(c) she was present during a WeChat conversation between her mother, Feng and Feng's husband (who she described as 'long term family friends') in about January 2022, when she was visiting China with her mother;

(d) during this conversation, Feng's husband asked Yan Shi to lend him $600,000 for business purposes. Shi He said that Yan Shi would need some security and a guarantee, and that Yan Shi would need to lodge a caveat over the title to the Camberwell property. However, Feng requested that Yan Shi not do so as she was in the process of refinancing the Camberwell property;

(e) Feng told her that the Commonwealth Bank had valued the Camberwell property at $3.25 million, and that she proposed to borrow $2.6 million from the Commonwealth Bank, which would leave her with about $200,000 in cash to provide 'an extra layer of protection' to the loan agreement;

(f) Feng's husband told her that there were no other interests in the Camberwell property, because if there were, Feng could not refinance with the Commonwealth Bank;

(g) the borrowers authorised Yan Shi and Shi He to discuss the proposal with the Commonwealth Bank, following which Shi He spoke with a former colleague who worked at the Commonwealth Bank, who sent her a photo of a title search dated 17 November 2021. Another person at the bank provided her with the refinancing application documents referred to in Yan Shi's affidavit;

(h) in late February 2022 she asked a friend at RAMS to carry out a title search for the Camberwell property,[15] following which she spoke to her friend's colleague, who told her that apart from the mortgage, the title was clear. She conveyed this information to her mother; and

(i) Shi He deposed as follows:

On 4 March 2022, I rang a former colleague and friend, Rick Xue, at the Commonwealth Bank to confirm if there was any other encumbrance on the title and whether the refinancing with the Commonwealth Bank would proceed. Xue said to me that the mortgage refinance would proceed as scheduled. I understood this to mean that there were no caveats or encumbrances that would stand in the way of this.

After this call, the same day, I spoke with my mother in person and told her that the title was 'clear' except the bank's mortgage.

On 22nd March 2022, Feng successfully refinanced her loan from ANZ to Commonwealth Bank. She also contacted with me and mum via WeChat video call showed a new title search which contains no encumbrance other than the new mortgage with Commonwealth Bank, as expected.

1. Yan Shi also relied upon a supplementary affidavit affirmed by her on 18 August 2025, where she deposed that she had received Shi He's affidavit in draft form, and agreed with its contents. In addition to verifying the matters set out in Shi He's affidavit and her earlier affidavit, Yan Shi deposed as follows:

Shi suggested that I get any loan documented by lawyers, which I had done (I refer to paragraph 10 of my affidavit).

Further to paragraph 11 of my affidavit, before entering into the loan agreement my daughter told me that there was only a mortgage on title, that it was otherwise clear, and there were no caveats.

Further to paragraph 12 of my affidavit, and before I actually advanced the money, my daughter told me that the title to the property was clear. I understood this to mean that there were no other mortgages or caveats on title.

Given what I now know as a result of these proceedings, as I have been shown a historical title search for the property, had I actually seen a title search on 3 or 4 March 2022, I would not have seen anything on title besides the loan to ANZ - and this is what I understood to be the case when Shi told me that the title looked the same and that things were fine.

Whilst l was aware that a refinance was taking place between the ANZ and the Commonwealth Bank, and was prepared to lend on that basis, I would not have loaned the money if I had known that there was another loan behind the scenes secured by the property.

I relied on the title search dated 17 November 2021, and I relied on what my daughter said to me each of the times before signing the loan agreement and before transferring the money about the title search, and that the title was 'clear'.

1. Counsel for KKJA submitted that, given there is no suggestion that KKJA has engaged in any conduct which would have caused Yan Shi to believe that her equitable interest would have priority over KKJA's interest, KKJA's priority interest in the funds should prevail. Counsel submitted further that Yan Shi should have known that Feng granted equitable interests over the Camberwell property, because her own interest was a caveatable interest. Yan Shi did not give evidence of making any further enquiries of Feng regarding the existence of any unregistered security interests in the Camberwell property.
2. Counsel for KKJA submitted that KKJA's conduct was not the cause of Yan Shi's loss. Rather, Yan Shi knew, or should have known that she was engaging in high risk lending, as evidenced by the terms of the loan agreement, but failed to properly protect her interests. Her loss was caused by her trust in her friends, not the conduct of KKJA.
3. In his oral submissions during the course of the hearing, counsel for KKJA submitted in support of his contention that Yan Shi's loss has not been caused by KKJA's conduct, but her own conduct, as follows:

(a) the stated purpose of the advance was said to be 'business short term cash flow';

(b) the loan agreement provides for an annual interest rate of 24.3 percent, and a default interest rate of 36 percent; and

(c) Yan Shi was prepared to lend a sum of money which on her own calculations would exhaust the available equity in the Camberwell property.

1. Counsel for KKJA submitted that the date of registration of the parties' caveats is not relevant to the question of determining the time at which their equitable interest arose, but they are relevant to determining whether KKJA has engaged in postponing conduct.
2. Counsel for KKJA criticised Yan Shi's statement to the effect that she would not have loaned funds to the borrowers had she known there was another loan secured by the Camberwell property as 'disingenuous', coming as it did after the parties had filed their written submissions. Yan Shi did not depose that she had seen documents which evidenced how much Feng planned to borrow from the Commonwealth Bank, and she took no steps to verify the representations made by Feng's husband to the effect that there were no other unregistered interests in the Camberwell property. Further, Yan Shi's daughter, given her professional experience, would have known that Feng would be in breach of her obligations to the first mortgagee by entering into the loan agreement and that this was the reason the loan advanced by her would remain 'off the books'.
3. Counsel for KKJA submitted as follows:

My client hasn't contributed to the defendant's understanding of what the Commonwealth Bank loan is, what the value of the property is, whether or not there's sufficient equity in that property for the defendant's loan. We've done none of that. We've had no contact with them whatsoever. So we've done nothing, as it were, except not lodge a caveat, and the authorities, we say, are clear that in and of itself is not sufficient to postpone our interest in the property.[16]

1. In response, counsel for Yan Shi submitted that the current case exemplifies the circumstances which should result in the usual order of priority being displaced. In this case, KKJA's failure to lodge a caveat led Yan Shi to acquire her equitable interest in the Camberwell property on the assumption that no earlier interest existed.
2. Counsel for Yan Shi submitted that KKJA's submissions to the effect that a prior interest holder must do something to encourage the later interest holder to form the view that their interest will not be subsidiary to another interest amounts to a 'gloss' on the statements in the authorities to the effect that a mere failure to lodge a caveat does not amount to postponing conduct.
3. Counsel for Yan Shi submitted that all that Yan Shi must show to establish her priority to the funds is that she relied upon a title search of the Camberwell property during the period between KKJA executing the mortgage and the execution of the loan agreement, and that she advanced funds on that basis. The evidence establishes that she did so. Further, KKJA's conduct demonstrated a 'laissez-faire' approach to the protection of its interest, especially given that it had a mortgage capable of registration, which would have perfected its interest.
4. Counsel for Yan Shi observed that all of the criticisms which have been levelled at his client's conduct could be similarly levelled against KKJA.
5. Counsel for Yan Shi submitted that this is not a 'mere failure' case: rather, it is a failure to caveat (or register) coupled with a later interest holder acting with some diligence to ascertain the state of affairs with respect to the title of the Camberwell property. These circumstances, counsel submitted, in effect shift the onus back upon KKJA to re-establish its priority.
6. Counsel for Yan Shi rejected the contention that Yan Shi engaged in risky lending, noting that the sale price of the Camberwell property was consistent with the figure provided to Yan Shi. Further, the criticism that the borrowers were trusted family friends of Yan Shi actually adversely affects KKJA's position in the current proceeding, given that there was no evidence of any personal relationship between KKJA and the borrowers, and therefore no evidence supporting any reason why KKJA did not register its mortgage or lodge a caveat. Further, Yan Shi's own failure to lodge a caveat for a number of months is irrelevant, as the only relevant period is the period between the execution of the mortgage and the execution of the loan agreement.
7. Counsel for Yan Shi submitted that the position of KKJA in the present case is readily distinguishable from that of the plaintiff in Jacobs,[17] where the prior interest holder was not in an arms length relationship with the registered proprietor. Here, KKJA asserted in its submissions that it was an arms length lender, and as such would have had no reason to trust the borrowers. In any event, Yan Shi did take reasonable steps to verify the information provided by the borrowers.

1. In my view, the failure of KKJA to either register its mortgage or lodge a caveat prior to Yan Shi entering into the loan agreement amounted to, in the circumstances, postponing conduct.
2. I accept that a mere failure to lodge a caveat does not of itself amount to postponing conduct. However, that does not mean that the (unexplained) failure to lodge a caveat is not a material consideration. In my view, there is no material distinction between the facts of the current case and the facts in Mimi[18] and Double Bay Newspapers,[19] where the failure of the first in time interest holder to lodge a caveat was found to have contributed to the detriment suffered by later interest holders who had taken their interests on the faith of the register.
3. This is not a case where there is evidence which shows that KKJA's failure to lodge a caveat was reasonable or at least understandable in the circumstances. There is no evidence whatsoever about the nature, duration and quality of the relationship between the director of KKJA and the borrowers. Accordingly, it is not possible to determine whether the current case is analogous with what was before the Court in Jacobs,[20] where the failure of the first in time interest holder to lodge a caveat to protect her interest could be explained by the close family relationship between the first in time interest holder and the directors of the defendant. In those circumstances, it was understandable for the first in time interest holder to be confident that the registered proprietor would not deal with the property contrary to her interests.
4. Here, there is nothing to suggest that there was anything other than an arms length commercial relationship between KKJA and the borrowers. There was no evidence to suggest that there was any particular reason for KKJA to rely upon any representations made by the borrowers to the effect that they would not further encumber the property (if any such representations were in fact made), but KKJA's failure to lodge a caveat armed the borrowers with the capacity to do so. The evidence supports a conclusion that the borrowers were prepared to make misrepresentations regarding the equity position of the Camberwell property. Further, while Yan Shi was criticised for engaging in high risk lending, the terms of the mortgage (which provided for short term funding at high interest rates) with interest payable at the time of the advance of funds, mean that the same could be said of KKJA. In those circumstances, the failure of KKJA to at least lodge a caveat is inexplicable.
5. As for Yan Shi, she has given direct evidence that but for the absence of any further encumbrances upon the title to the Camberwell property, she would not have entered into the loan agreement. Given that the principal of the loan has not been paid, and the funds are insufficient to repay the funds advanced by her pursuant to the loan agreement, she has suffered detriment by reason of the failure of KKJA to lodge a caveat on the title of the Camberwell property prior to 3 March 2022.
6. Some criticism was made of Yan Shi's statement that she would not have made the loan agreement if she knew that there was another loan. However, it seems to me that, read fairly and in its proper context, the word 'loan' should be read to mean any further encumbrance that materially reduced the equity left in the Camberwell property. In any event, that statement is supported by the evidence of what actually occurred prior to Yan Shi entering into the loan agreement. While there was no evidence that Yan Shi asked Feng about any further encumbrances upon the title of the Camberwell property, Shi He's evidence was Feng's husband said that there were no other encumbrances upon the Camberwell property, because if there were, Feng would not be able to refinance the Camberwell property.
7. Further, while Yan Shi did trust the borrowers, she did not solely rely upon the statements of the borrowers to the effect that there were no other encumbrances. Rather, through her daughter, Yan Shi took steps to verify that representation by arranging title searches. It is difficult to see what more she could have done in the circumstances.
8. Counsel for KKJA submitted that KKJA should not lose its priority, because it had no contact with Yan Shi, and had taken no action which led Yan Shi to believe that the Camberwell property was unencumbered. However, a review of the authorities shows that it is not necessary for there to be any relationship or contact between the first in time interest holder and a subsequent interest holder to establish any postponing conduct. In most cases, the different interest holders will not know or have any knowledge of each other. Further, the authorities refer to the acts and omissions of the first in time interest holder, including a failure to lodge a caveat, not just the actions of the first in time interest holder.
9. As for the submission that Yan Shi suffered loss by reason of her trust in the borrowers and her willingness to engage in risky lending, not the conduct of KKJA, it seems to me that Yan Shi (as advised by her daughter) knew that she was engaged in risky lending, and therefore took steps to protect her position. She gave direct evidence that she would not have entered into the loan agreement if she had known there was a further encumbrance, and she has been unable to recover the funds advanced by her under the loan agreement. In any event, KKJA also engaged in risky lending, and took no steps to protect its position, in circumstances where there was no evidence of any particular reason for KKJA to trust the borrowers, and KKJA knew that it was providing short term finance for business purposes at well above market interest rates.
10. Accordingly, in all of the circumstances, it would be unconscionable for KKJA to maintain its priority over the funds.
11. I shall hear further from counsel as to the form of order and the question of costs.

[1] The evidence of Yan Shi's daughter was that Feng told her that the Camberwell property was valued at $3.25 million, and that she would be refinancing the Camberwell property by taking a mortgage with the Commonwealth Bank for $2.6 million, which would provide Feng with a couple of hundred thousand dollars cash. I can therefore infer that the amount secured by the first mortgage at the time the mortgage was executed was somewhat less than $2.6 million.

[2] Moffett v Dillon [1999] VSCA 32; [1999] 2 VR 480 [42]-[43].

[3] [2003] VSC 260.

[6] [1990] VicRp 14; [1990] VR 146.

[7] Hili Mimi v Millenium Developments Pty Ltd [2003] VSC 260 [30]-[31].

[10] (1996) 42 NSWLR 409.

[14] At the hearing of the application, I allowed Yan Shi to rely upon affidavits sworn by her and her daughter and filed and served the day before the hearing. While counsel for KKJA objected to these late affidavits being admitted into evidence, I allowed Yan Shi to rely upon the affidavits, which merely elaborated upon the evidence given by Yan Shi in her affidavit filed in April 2025. Counsel for KKJA did not seek an adjournment of the hearing, and said that he was in a position to deal with the late served material.

[15] It seems that Yan Shi and Shi He were still in China in late February 2022, as Shi He explained that while she has a Landata account which she regularly uses to conduct title searches, she does not use this account while in China because of internet restrictions and security concerns.

[17] [1990] VicRp 14; [1990] VR 146.

[18] [2003] VSC 260.

[19] (1996) 42 NSWLR 409.

[20] [1990] VicRp 14; [1990] VR 146.