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[2005] VSC 467
Supreme Court of Victoria
2005-11-18
HANSEN J
Original judgment source is linked above.
Caveat - Lodged by unit-holder in unit trust - Removal - Transfer of Land Act 1958, s 90(3).
1 This is an application for the removal of a caveat lodged by the liquidator of a company that holds units in a unit trust. The application is brought in circumstances in which notice has been given that unless by 25 November a refinancing has been arranged in respect of the commercial property owned by the trustee a mortgagee will exercise its rights in relation to the property. The property in question is the sole asset of the unit trust. It is a commercial property located at 6 - 8 Floriston Road, Boronia. The plaintiff is the trustee of the unit trust which is called the 6 Floriston Road Unit Trust. The company on whose behalf the caveat has been lodged is the first defendant, Kingsley Brown Finance Pty Ltd ("Kingsley Brown"). Kingsley Brown was one of the two companies issued units on the establishment of the trust on 7 September 1999. The other company granted units was Torus Games Pty Ltd ("Torus Games"). Each company was issued 50 units.
2 In May 2004, following differences and disputes between the unit-holders, Torus Games was paid out, its units were redeemed and cancelled, and 5000 units were issued to Silverleaves Holdings Pty Ltd.
3 At around that time, in March 2004 to be exact, the plaintiff refinanced the trust with a first mortgage for $585,000 and a second mortgage for $104,000. The plaintiff fell into default under each mortgage which led to enforcement proceedings in 2005. Each mortgagee obtained a judgment for possession of the land and the plaintiff has been given notice that unless refinancing is achieved the second mortgagee will take possession.
4 I should mention that earlier, on 8 August 2004, the first defendant was placed in liquidation by order of the Court. On 24 November 2004 the first defendant, by the liquidator, lodged a caveat forbidding dealings in the land. The estate or interest claimed in the caveat is an estate in fee simple, the ground of the claim is "Pursuant to a unit trust deed dated 7 September 1999 wherein the caveator is a unit holder" and the extent of the prohibition is absolute except for a transfer to the caveator at the caveator's direction.
5 In the time of these events the plaintiff has sought to refinance the property. The result is that finance is available but it will not be granted unless the first defendant's caveat is removed or the caveator permits a replacement mortgage to the new financier to be lodged ahead of the caveat. The liquidator of the first defendant opposes the application for removal of the caveat and will not agree to a mortgage to the new financier being lodged with priority to the interest of the caveator.
6 I note that in a letter dated 5 October 2005 the solicitor acting for the proposed refinancier advised the plaintiff that he had submitted to the caveator on a number of occasions that the refinance would not be detrimental to the interests of the caveator nor diminish the equity in the property. To the contrary, it was stated, as the replacement mortgage is at a lower rate than the combined first and second mortgage rates, the position of the liquidator would be significantly enhanced. The solicitor noted further that he had not received any positive response to his suggestion to the caveator that a mortgagee's auction would significantly reduce the equity and may well produce no equity after payment of the first and second mortgage liabilities and the expenses of the auction. The equity would be further eroded by penalty interest.
7 Notwithstanding that these matters were deposed to, or contained in exhibits to, the primary affidavit in support sworn on 9 November 2005, no affidavit was filed by or on behalf of the caveator. When I asked counsel for the caveator why this was so she indicated that it was because of a lack of funds in the liquidation.
8 I have heard a range of arguments this morning on the issue both whether there is a serious question to be tried as to the existence of the interest claimed in the caveat and on the issue as to whether on the balance of convenience the caveat should be permitted to stand. The onus on these matters is upon the caveator, approaching the matter as one would on an application for an interlocutory injunction pending trial.
9 The trust concerned is a unit trust, as I have said. There are two unit- holders. The caveator was originally an equal unit-holder with the other unit- holder in terms of the number of units but there has since been a transaction as a result of which 5000 units have been issued to another entity and the consequence of which is, assuming the validity of that issue, the caveator holds in the order of one per cent of the units.
10 In her submissions, counsel for the caveator pointed to clause 23.2 of the Unit Trust Deed and to the minutes of the meeting of the trustee held on 4 May 2004 and contended that the cancellation of Torus Games' units and the issue of units to the new unit-holder was ineffective. It was submitted that there was no power to do these things, or at least to issue the new units. She even submitted that the result was that only the first defendant remained as a unit-holder. That would seem an extraordinary consequence, in light of the fact that Torus Games and the plaintiff had agreed on these actions by a commercial settlement, and the caveator must have been aware of what was done. It may be one thing for there to be invalidity in an issue but to have the consequence that the associated cancellation was valid leaving only one unit-holder seems an extreme one. The submission was made for the first time today in the sense that previously the contention has never been indicated to the plaintiff or the other purported unit-holder with the consequence that they had had no opportunity to consider it.
11 I think, however, that the contention is not decisive of the present application. The first question that arises is whether or not there is a serious question to be tried as to the interest claimed in the caveat. The contention for the plaintiff is that there is not, that the relevant clause 16.4 of the Trust Deed provides that a unit holder has no interest in particular property. The plaintiff submits that on that basis, and on the basis of the decision of O'Bryan J in Evindon Pty Ltd v Ambasax Pty Ltd given on 25 October 1995, the caveator has no interest as claimed in the caveat. Counsel for the plaintiff also relied on clause 16.3 which states that a unit-holder is not entitled to interfere with or question the exercise or non-exercise by the trustee of any of the powers or discretions conferred upon the trustee by the Trust Deed, nor the manner of exercise thereof. It was submitted that the effect of lodging the caveat is to interfere with the exercise by the trustee of its powers and discretions.
12 I should mention also that although no reference to this was made by counsel for the plaintiff it seems to me there is a serious question as to the correctness of the interest claimed in the caveat. As mentioned, the interest claimed is an estate or interest in fee simple pursuant to the Unit Trust Deed wherein the caveator is a unit-holder and, consistently, the prohibition is absolute except for a transfer to the caveator. If one reflects back to the provisions of clause 16.4 of the Trust Deed it provides that:
"Each Unit shall confer an equal interest in the Trust Fund but shall not confer any interest in any particular part of the Trust Fund nor in any investment but only such interest in the Trust Fund as is conferred on a Unit under the provisions contained in this Deed".
"the beneficial interest of the Unit Holders in the Trust Fund shall be divided into Units."
13 So there is an interest in the sense recognised in the overall fund but not in any particular part of it. The subject property is, of course, the property of the trust and is to be regarded as the fund for this purpose.
14 Returning to the caveat, what was claimed was an interest in the fee simple estate, that is to say the caveat claimed an interest in the entirety, the entire fee simple estate. As it seems to me, there is no possible way that that could be done in accordance with the interest recognised or conceded in the Trust Deed as I would presently understand it. The grounds of the claim are stated to be that it is made pursuant to the unit trust but the Unit Trust Deed, as I have said, initially conferred at most a beneficial interest in one half of the trust property or, as it would now seem to be, one per cent or so of the trust property. It seems to me that the claim made in the caveat is not sustainable.
15 Then I should say something about the decision of O'Bryan J referred to earlier. His Honour held that a unit-holder's proprietary interest in an asset of the unit trust in question did not confer a caveatable interest for the purpose of the Transfer of Land Act when the asset comprised land. It might be noted that in that case the caveat did not claim an interest in the whole but an equitable interest in fee simple as unit holder as to five equal undivided one-sixtieth parts or shares pursuant to a declaration of trust. That restricted the caveat to an equitable interest and to the precise interest of that unit-holder which may be contrasted in that respect to the caveat in this case which claimed an interest in the entire fee simple estate. In any event, the decision of O'Bryan J was as I have indicated and that, if I was to apply it, would be enough to mean that the caveat in this case could not stand.
16 Counsel for the defendant caveator drew my attention to a decision of Pullin J in Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd[1], which was to the contrary of the decision of O'Bryan J. In that case the holder of units in a unit trust with trust deed provisions similar to clause 16.4 lodged a caveat over land held by the trust. The caveat claimed an interest as beneficiary of a trust by virtue of the trust deed and forbad registration of any instrument. Pullin J held (at [20]) that the unit-holder had a caveatable interest, on the basis of authorities that hold:
"that provisions in unit trust deeds to the effect that a unit holder is not entitled to any particular asset in the trust fund or to an interest in any particular asset, are to be construed in context as meaning no more than that the unit holder is not entitled to have the exclusive use or ownership of any particular asset."
As Pullin J noted (at [21]) these conclusions depended upon the terms of the unit trust in each case and on the effect in law of those provisions. He went on to disagree (at [26]) with the conclusion of O'Bryan J that a unit-holder's proprietary interest in the assets of the trust does not confer a caveatable interest for the purpose of the Transfer of Land Act when the asset comprises land. Having so concluded, Pullin J considered the further issue whether the caveator had been entitled to lodge an absolute caveat, that is a caveat which forbad absolutely the registration of any dealing in the land based merely upon its interest as a beneficiary in a unit trust. He held that the caveator was not entitled to lodge an absolute caveat. In other words the caveat lodged went beyond the legitimate claim of a unit-holder with a limited beneficial interest in a unit trust. Pullin J held (at [39]) that a "notice" caveat would have been appropriate, ordered the removal of the existing caveat and gave leave to lodge an amended caveat.
17 In understanding the final point in Pullin J's decision as to a "notice" caveat, it is important to have regard to the terms of the relevant Western Australian legislation, the Transfer of Land Act 1893 (WA), s 137 and s 138. Section 137(1) makes provision for lodging a caveat. Whereas the equivalent section in the Victorian Transfer of Land Act, s 89(1) provides merely for a person "claiming any estate or interest in land" to lodge a caveat "forbidding the registration of any ... instrument affecting such estate or interest either absolutely or conditionally ...", s 137(1) of the Western Australian Act adds that the caveat may forbid registration "absolutely or until after notice of the intended registration or dealing be given to the caveator or unless such instrument be expressed to be subject to the claim of the caveator as may be required in such caveat". As Pullin J noted (at [24]) s 137(1) confers on a caveator the right to choose one of three types of caveat, namely:
b) a caveat forbidding registration of any transfer or instrument until after notice of the intended registration or dealing be given to the caveator; and
c) unless the instrument be expressed to be subject to the claim of the caveator.
18 It is immediately apparent that s 89(1) in the Victorian Act and s 137(1) in the Western Australian Act are expressed in significantly different terms.
19 I note that formerly the Sixteenth Schedule to the Transfer of Land Act contained a form of caveat for the purpose of s 89. That form provided for a caveator, as an alternative to an absolute prohibition on dealings, to lodge a caveat with prohibitions (b) and (c) above. The Schedule was repealed in 1983 by Act number 9776 which allowed for a caveat to be in an approved form. I heard no argument as to this but will assume that the approved form contemplates prohibitions of the (b) and (c) type. I was merely pressed with the decision of Pullin J on the point on which his Honour disagreed with O'Bryan J. Counsel for the defendant treated that as conclusive that the caveator truly was entitled to lodge the caveat with the interest claimed. I was not addressed on the significance, if any, of the difference in the legislation. Yet that difference was critical to Pullin J's ultimate decision. For although he held that the unit-holder had a caveatable interest the caveat in fact lodged was not sustainable as the interest claimed went "beyond the legitimate claim necessary to protect the caveator's rights" (at [35]). It may be that that observation is to be understood in light of the terms of s 137(1). Against that however was the conclusion of his Honour (at [38]) that the caveator "had no right to lodge an absolute caveat based merely upon the existence of its interest as beneficiary in a unit trust".
20 That ultimate conclusion seems to me, although made in a different statutory context, to accord or be consistent with, the conclusion I have expressed above as to the interest claimed in the caveat in this case. In my view the interest claimed went beyond any that might be claimed and, as such, the caveat is not maintainable.
21 As I understood counsel for the defendant she submitted that if I were of this view I should permit the caveat to be amended to properly reflect the interest of the caveator. No form of words was suggested as to this. Presumably the interest would change to an equitable interest but was it to be in the entire fee simple estate on the basis of the submission as to invalidity of the issue of the 5000 units, or to one per cent or so, or to an equal share on the basis that both the redemption and new issue were void? Further, was it to be an absolute prohibition save for a transfer to the caveator, or was it to be a notice caveat as in Binningup? Nothing was put forward as a suggested amendment. Bearing in mind that the onus was on the caveator to sustain the caveat, and bearing in mind the fundamental change in the estate or interest that an amendment would seem to claim, and that no amendment is put forward, I decline to accede to the (undeveloped) application to amend.
22 In this situation it is not necessary for me to consider whether the decision in Evindon that the unit-holder did not have a caveatable interest was correctly decided. It is to be noted however that the decision has stood in this State since 1995.
23 Nevertheless, let it be assumed that there was a serious question to be tried that the interest claimed was sustainable. It then remains to consider whether on the balance of convenience the caveat should stand.
24 Counsel for the plaintiff pointed to a number of factors, the first being the obvious one that the trustee was the person empowered with the duty and responsibility to manage the trust with power to sell and mortgage and that, in effect, the caveat is a backdoor way of blocking the trustee in the exercise of those powers. He pointed to the fact that it is necessary to obtain refinance to be able to deal with the mortgagees and to develop the property in order to turn the fortunes of the trust around, and to the threat of the mortgagees to exercise their rights which one would suppose would involve selling the property.
25 The primary point made by counsel for the first defendant on this aspect was that there was no evidence that the trustee would be able to meet the financial obligations under the proposed refinancing arrangements. As to this, a few things can be said. The first is that the liquidator of the first defendant has not gone on oath as to any matter at all. Counsel has simply come on the liquidator's retainer to address such submissions as may be able to be made off the papers. There is no affidavit material from the liquidator in which he has pointed out by some analysis of the papers what his particular concern is, it is simply put in the air by counsel on his behalf. That is, notwithstanding the efforts of the solicitor for the financier to explain the financial benefit in the proposed refinancing, the liquidator has put forward no reasoned response.
26 Counsel for the plaintiff pointed out that the fact is that at the end of a long process a financier is prepared to lend. He submitted that that indicates a consideration by that entity of the capacity of the trustee to meet the obligations to be undertaken, and that that in itself is evidence of the likelihood that the obligations will be met. This is not to put aside the concern expressed by counsel for the liquidator because on the hypothesis submitted it may be that a better financial return would be achieved by the first defendant in liquidation if the mortgagees are left to move in and realise the property and distribute to unit-holders whatever may be left. I do not know how figures might work out, for as I say the liquidator has not afforded the Court the benefit of any analysis that he has made of likely outcomes, and so, as I say, the submission on his behalf is made in the air without an ability on my part to test it by reference to actual figures.
27 In the end I conclude, having regard to all of these matters, that both because in my view the claimed caveatable interest is not sustainable and because, even if I thought that there was a caveatable interest or that there was a serious question as to such caveatable interest, on the balance of convenience I think that the caveat ought to be removed and I will so order.
Floriston Nominees Pty Ltd
Kingsley Brown Finance Pty Ltd [2005] VSC 467