Plaintiff v Defendants

Plaintiff v Defendants - [2006] VSC 343 - VSC 2006 case summary — Zoe

[4]

1 This is an application pursuant to s 90(3) of the Transfer of Land Act (1958) for the removal of two caveats that have been lodged in respect of three Certificates of Title, Volume 6616 Folio 154, Volume 4628 Folio 552 and Volume 5428 Folio 443. The matter proceeded on the basis that should the applicants succeed in having the caveat removed from one of the properties, the same would follow for the other two. The applicants are the first and second defendants to the proceeding 9478 of 2005 and the respondent is the plaintiff. The essence of the plaintiff's claim is that he holds a beneficial interest in the properties as a unit-holder in two unit trusts of which the defendants are trustees. Mr Schmidt, as plaintiff to the substantive matter, and the respondent to this application, claims that the applicants were at all relevant times trustees holding the subject property on trust in favour of various unit-holders. The relevant properties are located at 28 Myola Street[1] and 10-12 Myola Street[2] Carrum.

2 The respondent claims that his dealings with Mr Ian Wynnton Maddocks, a former director of each of the defendant companies, have given rise to an equitable interest in the properties. The respondent further claims that 28 Myola Street Pty Ltd (the first defendant) was the trustee of Property Syndicate No 5 Unit Trust which consisted of the property 28 Myola Street . Carrum. He also claims that Myola Street Nominees Pty Ltd (the second defendant) was the trustee of Property Syndicate No 4 Unit Trust which comprised 10-12 Myola Street, Carrum. Mr Schmidt dealt only with Mr Maddocks who purported to act on behalf of the trustee companies. Mr Schmidt made several payments to Mr Maddocks in the belief that he was contributing to the purchase of the properties. Mr Maddocks has since been charged with at least four counts of theft from Mr Schmidt. In this context, Mr Schmidt lodged the caveats that he did. Mr Schmidt further claims that he holds an equitable interest in the properties and seeks the consequential declaratory relief.

3 On the other hand, the applicants deny any knowledge of Mr Schmidt and the alleged dealings with Mr Maddocks. Further, they claim that, to the extent of their knowledge, the Property Syndicate No 5 Unit Trust and the Property Syndicate No 4 Unit Trust do not exist. Rather, they say 28 Myola Street Pty Ltd holds 28 Myola Street as part of the 28 Myola Street Trust and Myola Street Nominees Pty Ltd holds 10-12 Myola Street as part of the Myola Street Trust.

4 The applicants claim that as soon they became aware, through their employee Franciscus Aloysius de Groot, of any wrongdoing by Maddocks they requested Maddocks resign as a director of the defendant companies. Although not denying the dealings between Maddocks and the respondent, the applicants deny that they were in receipt of any of the respondent's money.

5 The outcome of this application depends on two issues: first, whether the interest claimed by the respondent is able to support a caveat under s 89 of the Transfer of Land Act 1958 ('the Act'); and whether, in exercise of the discretion conferred by s 90(3) of the Act, I should allow the caveats to remain.

[13]

11 Harper J then cited Butler v Fairclough[11] which is often relied on as authority for the subsistence of equitable interests in land after the implementation of the Torrens legislation. Further, his Honour relied on Avco Financial Services Ltd v White[12] which was approved by Marks J in King v AGC (Advances) Ltd & Anor[13] to support the proposition that an unregistrable interest can support a caveat.[14] Batt J in Classic Heights treated these cases differently. With respect to Avco, Batt J noted that Gillard J in Avco overlooked the contentious point in Classic Heights; namely, whether an unregistrable interest can support a caveat.[15] Further, although King purports to approve the decision in Avco, the contentious equitable interest in King was not of the same nature as that in Avco. The interest in King being an unregistered interest as opposed to an unregistrable interest (as was the case in Avco), King should be qualified when considering Avco.[16]

12 Batt J and Harper J differ in their respective analyses with respect to Miller. Harper J states, "The real issue in [Miller] was whether [the relevant mining legislation] created rights which, although affecting land, existed quite outside the Torrens system and which did not therefore depend on registration... for their efficacy."[17] Further, Harper J states that, to the extent that Miller stands for the proposition that "rights which are incapable of giving rise to a registrable instrument may coexist with the Torrens system of title",[18] it supports his, not Batt J's, conclusion.

13 Ashley J in Chiodo v Murphy & Anor[19] also declined to follow Classic Heights. That case was primarily concerned with the interpretation of a particular contractual clause which is immaterial here. Ashley J also considered whether, should that particular clause give rise to an equitable interest, that equitable interest could in fact support a caveat. Expressly rejecting the approach in Miller, Ashley J noted that "the speech of Lord Guest in Miller presented an incomplete picture of the circumstances in which a caveatable interest may be established; and too narrowly stated the purpose of a caveat."[20] His Honour observed that the word "otherwise" in s.89(1) of the Transfer of Land Act should not be narrowly construed. Importantly, with respect to Avco and King, Ashley J adopted a similar view to that of Harper J in Crampton.

[19]

"Such is the generality of the language used in these two sections of the Act, it makes it difficult to support the view that a person claiming an equitable charge over land would not be entitled to lodge a caveat. Griffith, CJ said in Butler v Fairclough which was repeated by the Privy Council in Lapin v Abigail as follows:-- "It must be taken to be well settled that under the Australian system of registration of titles to land, the courts will recognise equitable estates and rights, except so far as they are precluded from doing so by a statute. This recognition is indeed the foundation of the scheme of caveats which enables such rights to be temporarily protected in anticipation of legal proceedings. In dealing with such equitable rights, the courts in general act upon the principles that are applicable to equitable interest in land which is not subject to the Act. In the case of a contract between two equitable claimants the first in time, all other things being equal, is entitled to priority ... a person who has an equitable charge upon the land may protect it by lodging a caveat which, in my opinion operates as notice to all the world, that the registered proprietor's title is subject to an equitable interest alleged in the caveat.

Despite the development of the notion of title by registration since the Privy Council decision in Frazer v Walker and the views expressed by Barwick, CJ, and Windeyer, J, in J. and H. Just (Holdings) Pty. Ltd. v Bank of New South Wales in relation to these dicta of Griffith, CJ, I am of opinion (sic) that those parts of the dicta where the learned Chief Justice has said that a party having an equitable charge could protect it by lodging a caveat on title have not been affected by any subsequent authority. It will be noticed that Griffith, CJ, pointed out that the recognition of equitable interests was always subject to their being precluded by statute. In my view, it has not been shown that in the circumstances of the present case there was any statutory provision which precluded reliance upon the well established equitable principles as to priority of interests.

Having regard to the width of language contained in s 89 it is difficult to understand how it can be said that a grantee of an equitable mortgage or charge did not have sufficient estate or interest in land to protect by lodging a caveat. The use of the word "otherwise" should not be limited in its connotation except by other provisions of the Transfer of Land Act, or by the law of property. There appears to be no reason why an interest or estate recognized in the Court of Equity could not be comprehended by the use of such expression." (emphasis added)

[27]

"Light was thrown on the nature of the interest of a beneficiary under a unit trust by the High Court in Octavo Investments Pty Ltd v Knight, although that case did not concern a unit trust. The trust fund was held for five companies on trust to pay the income to them in equal shares and to distribute the capital equally between them on the "vesting day". The trust deed, in addition to giving the trustee many other powers, authorized it to carry on any business as it thought fit and to employ the whole or part of the trust fund in doing so. Despite the wide powers conferred on the trustee the High Court, as it seems to me, accepted that the five companies for whose benefit the business was being carried on each had a proprietary interest in the trust assets. The Court was, it is true, concerned with the interest, not of the beneficiaries, but of the trustee, but in recognizing the proprietary nature of the trustee's interest the Court also recognized the proprietary nature of that of the beneficiaries. So...their Honours refer to the two classes of person having a beneficial interest in the trust assets: the beneficiaries and the trustee. From the context...it is plain that the expression "beneficial interest" is, as regards the trustee, used in the sense of a proprietary interest in the trust assets, and I take their Honours to use the expression in the same sense in relation to the beneficiaries. But the most important authority for present purposes is Charles v Federal Commissioner of Taxation... That case concerned a unit trust which was not a trading but an investment trust. The trust fund comprised shares, debentures and other securities. The deed did not empower the trustee to traffick in securities, but gave a wide power to vary investments; other powers and duties are mentioned at p. 606. The following passage appears at p. 609 of the judgment of Dixon CJ, Kitto and Taylor JJ: "But a unit under the trust deed before us confers a proprietary interest in all the property which for the time being is subject to the trust of the deed", and Baker v Archer-Shee is cited. It appears from p. 605 that by the deed the beneficial interest in the trust fund was divided into units, that the managers were entitled initially to the whole beneficial interest in the trust fund and that the trustee was to retain the trust fund in trust for the certificate holders. None of these provisions is set out verbatim. In the passage cited from p. 609 the Court does no more than refer to the Archer-Shee Case.

To my mind, having regard to the New Zealand Insurance Case, the Octavo Investments Case and what is said in Charles v Federal Commissioner of Taxation, the conclusion is inescapable that the unit-holders in the Costa and Duppe Properties Unit Trust have a proprietary interest in all the property which is for the time being subject to the trust deed...

A unit-holder has a proprietary interest in each asset of the trust notwithstanding the possible duration of the trust, the extremely wide powers or management given to the trustee and the possibility that the trust might lose the whole or part of its capital through unprofitable trading or speculation."

[31]

30 Although Duppe does not stand for the proposition claimed by the respondent, that is not to say that this proposition might ultimately be reached. In Evindon, O'Bryan J held that "A unit-holder's proprietary interest in each asset of the trust does not confer a caveatable estate or interest for the purposes of [the Act]".[46] Contributing to this decision, however, was O'Bryan J's finding that the caveator "does not wish to register a dealing in the land in priority to another person's interest, it simply seeks to promote its interest in litigation commenced in separate proceedings against the trustee".[47] O'Bryan J later states, "The legal relationship between the trustee...and a unit-holder does not confer upon the unit-holder a right to frustrate or curtail the exercise of the very wide powers of management conferred on the trustee by the trust deed".[48] Further, O'Bryan J found that to allow the caveat to remain "may result in the trust losing the whole or part of its capital through a mortgagee's sale."[49]

31 Evindon illuminates a problem inherent in allowing a unit-holder in a unit trust to maintain a caveat, namely, the threat that a minor unit-holder will lodge a caveat to the detriment of the trust as a whole, or rather, to the detriment of larger unit-holders. This problem, however, does not derogate from the conclusion that I have reached above with respect to caveatable interests - for that conclusion flows naturally from the wording of the relevant provision in the context of the relevant law on the topic. Rather, the problem raised in Evindon is ameliorated by the exercise of the wide judicial discretion conferred upon a judge under s 90(3) of the Act[50] - a question separate from the question as to what interests may found a caveat under the Act. Indeed, it is unclear whether O'Bryan J's decision in Evindon was founded upon the exercise of this discretion or upon the precise wording of the trust deed in that case.

32 Without being exhaustive, the proper exercise of the discretion under s 90(3) will involve considering: in which party's favour the balance of convenience lies;[51] whether there is a serious question to be tried;[52] and whether the caveator claims an interest wider than what the caveator may be entitled.[53] These questions inform the ultimate consideration, that is, whether the caveator has discharged his or her onus of justifying the maintenance of the caveat.[54] The process is comparable to the exercise undertaken in granting or denying an interlocutory injunction.[55] Such is the nature of this exercise, the problem highlighted above in Evindon is subsumed by the questions of whether there is a serious question to be tried and in which party's favour the balance of convenience lies.

33 On this basis, I conclude that, depending on the terms of the trust deed, a unit-holder to a unit trust may possess an interest sufficient to support a caveat.

The Nature of the Respondent's Interest

34 The trust deeds in the present matter are in the same terms. It is a matter of contention between the parties whether the relationship between the respondent and the applicants is subject to this deed. I proceed on the basis that it is.

35 Under the heading "Effect of this Deed and Declaration of Trust" is cl 6 which states:

[42]

43 The removal of the caveat will not finalise any of the uncertainties stated by Mr de Groot. The extent of the respondent's entitlement, if any, will be equally uncertain. The removal of the caveat being of no avail in these circumstances, I consider that the balance of convenience falls in favour of the respondent.

Broad Statement of Interest and Prohibition

44 A further issue is the nature of the interest claimed by the respondent in the caveat. Counsel for the applicants contended that the interest (and its concomitant prohibition) was stated too broadly and that, therefore, the caveat should be removed.[57]

45 There are two contentious caveats. Both caveats are stated in a standard form provided by the Registrar of Titles. The first of these was lodged in respect of 28 Myola Street (Volume 6616 Folio 154) on 21 November 2005 (caveat no AE012566Y); the second of these was lodged in respect of 10-12 Myola Street (Volume 4628 Folio 552 and Volume 5428 Folio 443) on the same day (caveat no AE0112562H). The caveats are in similar terms. Under the heading "Estate or Interest Claimed", both caveats state "an estate in fee simple". Under the heading "Grounds of Claim", the second caveat states "As a unit-holder in the Property Syndicate No 5 of which the registered proprietor is the Trustee, the subject land being as (sic) asset of the said Property Syndicate No 5". Such is the nature of the respondent's claim in the substantive proceeding, the third caveat is of the same wording except "Property Syndicate No 5" should be replaced by "Property Syndicate No 4". Under the heading "Extent of Prohibition", both caveats state "ABSOLUTELY".

46 As illustrated in Lewenberg & Pryles v Direct Acceptance Inc Ltd,[58] a court may remove a caveat because it is stated too widely. In that case the applicants seeking the removal of the caveats were registered mortgagees who wished to execute a mortgagee's sale over the relevant land. The caveator was an unregistered mortgagee whose interest arose later in time. Forbidding the transfer of the property, the breadth of the prohibition stated on the caveat was stultifying the registered mortgagee's attempts to have the property sold. Both parties to the application being mortgagees, it was in both their interests that the property be sold. Consequently, O'Bryan J saw it of no real prejudice to the respondent that its caveat be removed. The respondent having not offered to amend the terms of the caveat (as a caveator may offer to do to avoid having its caveat removed)[59], it was ordered that the caveat be removed altogether.

47 The interests of the parties are not so clear in this case. Such is the nature of the respondent's claim to the relevant property, it is uncertain whether the interest stated on the caveat (and the concomitant prohibition on dealings with the land) is stated too broadly. It is apparent from the cases that come before this Court[60] that a practice has developed whereby caveators (presumably through their solicitors) immediately opt for an absolute prohibition on dealings with the land. Indeed, I believe this is the default position on the form.[61] Further, it has been noted that the form provided by the Registrar of Titles does not reduce the problems caused by a "lack of comprehensive administrative, judicial guidance, or legislation on how to describe the estate or interest or how to limit the prohibition expressed in the caveat".[62]

48 In light of the uncertainty surrounding the facts in this case, I do not consider that the applicants will be prejudiced to a degree sufficient to outweigh that done to the respondent by removing his caveat.

Conclusion

49 I consider the respondent has discharged his onus of satisfying the Court that the caveats should remain until the final determination of the matter at trial. The applicants' summons should be dismissed.

At a glance

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Judgment (43 paragraphs)

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Legislation Cited (8)

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