Plaintiff v Defendants

2 The property was mortgaged to the National Australia Bank in 1998. On 7 July 2008, Mr Floros lodged a caveat claiming an equitable estate or interest in fee simple as beneficiary of a constructive trust. The grounds for claim are stated to be:

The constructive trust arises by virtue of the use of the caveator's moneys, equipment and supplies of materials and services by the registered proprietor for the construction of improvements on the subject property such that the caveator is entitled to an interest in the subject land to the extent of the improvements so constructed.

3 The parties have proceeded with this application upon limited evidence. Mr Tahmazis was appointed to replace a prior personal representative of the estate of Mr Floros and states that he is not personally seized of all relevant facts. By an affidavit, he had produced bundles of correspondence between solicitors, and a copy of an amended counterclaim in proceeding 10201 of 2007 dated 22 March 2012. That proceeding is awaiting trial in the Commercial Court.

4 In 2007, the plaintiff commenced proceedings against the estate of Mr Floros. The nature of the plaintiff's claims in that proceeding was not fully revealed to me, except that the subject property appears to be in issue in some way in the claim. A substantial exchange of correspondence between solicitors failed to shine any light upon the basis for Mr Floros's interest claimed by the caveat. Mr Tahmazis contends that the allegations set out in the amended counterclaim demonstrate that the estate has an arguable constructive trust claim. The allegations made in this counterclaim were not verified on this application. There is no affidavit that advances the asserted interest by deposing, whether directly or from information and belief, to the transactions that arguably support the interest claimed.

5 Mr Tahmazis alleges that between 10 January 2003 and 23 September 2005, Mr Kambouris (the plaintiff's husband) directed building materials, fixtures, and services purchased by BTC Developments Pty Ltd, a company incorporated on 17 October 2001 to undertake work as a contract builder and property developer, to the plaintiff's property at Loch Sport. Mr Tahmazis alleges that the materials, valued at $60,582.34, were purchased by BTC for and on behalf of a joint venture. They were delivered to the Loch Sport property for, it is alleged, Mr Kambouris' personal use namely the construction of a dwelling on that property.

6 The joint venture referred to is alleged to be a joint venture between Mr Floros, Mr Kambouris, and one Con Kiatos for the purpose of purchasing, developing, and selling real estate that was constituted by an agreement that was oral and partly to be implied. It is alleged that Mr Kambouris' role in the joint venture was to contribute building and construction services. A discretionary trust (the TBA trust) was created and, in November 2002, BTC was appointed its trustee until 1 July 2005. The relationship between the trust, the trustee, and the joint venturers is unclear from the pleading.

7 Mr Tahmazis alleges that each of Mr Kambouris, Mr Floros, and Mr Kiatos owed to the other fiduciary duties in relation to the affairs of the joint venture and any dealings with the assets of the joint venture. The duties are not alleged to be owed to BTC and the Loch Sport property is not alleged to be an asset of the joint venture. Mr Tahmazis alleges that the direction given by Mr Kambouris for building materials purchased by BTC for the joint venture being directed to the Loch Sport property was a breach of the fiduciary duties owed between the three joint venturers.

8 Mr Tahmazis further alleges that Mr Floros is the corpus beneficiary of the TBA Trust and a member of the discretionary class (A), contending that in those circumstances he has an interest in the assets of the TBA Trust comprising the trust properties. Irrespective of whether this allegation can be made out, it plainly does not extend to either the building materials or the Loch Sport property, which are not alleged to be trust assets.

9 Rather, it is contended that the plaintiff was in knowing receipt of $60,582.34 of building materials, fixtures and services, which was joint venture property. Accordingly, she holds the Loch Sport property or such part thereof as the court determines equitable, on trust for the joint venture. Further, or alternatively, Mr Floros is entitled to trace that joint venture property into the Loch Sport property.

10 The first question to be considered on this application is whether the caveator can show that there is at least some probability on the evidence before the court that Mr Floros will be found to have the equitable rights or interest in the land asserted in the caveat. That probability needs to be sufficient to justify the practical effect that the caveat has on the ability of the registered proprietor to deal with the property in question in accordance with her normal proprietary rights.[1]

11 I am not satisfied that the caveator can establish with sufficient probability that the deceased had the equitable rights or interest in the Loch Sport land asserted in the caveat. Referring to observations made in a textbook,[2] counsel for the caveator asserted that caveats are commonly lodged to protect a claim under a constructive or resulting trust. This proceeding does not concern resulting trusts while the concept of a constructive trust must be approached with some care. Counsel drew my attention, as authority for the proposition relied upon, to the citation by the author of the textbook of Re Jonton Pty Ltd[3]. In that case the court rejected the contention that until a court declared that a constructive trust existed, the claimant had only a mere equity that could not enjoy priority over an equitable interest in an unregistered mortgage. However, the form of constructive trust in issue was a common intention constructive trust.[4] That is not this case.

12 Here, the caveator contends for the interest described in the caveat in two ways. First, counsel contended that the caveator alleges in the counterclaim that he is the corpus beneficiary and a member of the discretionary class (A) of the TBA Trust. The trust deed is not in evidence and I am left to proceed by whatever inference can properly be drawn from the allegations made in that pleading. The issue is of some significance as unit holders in a unit trust can have a caveatable interest,[5] but if the trust is a discretionary trust it is unlikely that the beneficiaries will be able to establish a caveatable interest in the trust property.[6] The view that is generally taken is that the beneficiary of a discretionary trust has no greater right than the right to have the trust properly administered. On the evidence before me I am not satisfied that the caveator's position as a beneficiary of a trust as alleged in the counterclaim is capable of supporting the interest claimed by the caveat.

13 Counsel for the caveator advanced a second contention. By reference to Barnes v Addy,[7] the caveator contends that the registered proprietor's receipt of joint venture property for use in constructing improvements on the Loch Sport property, knowing that such building material had been obtained by her husband in breach of the fiduciary obligations to the joint venture that are alleged in the counterclaim, is sufficient to found a constructive trust.

14 As a matter of principle, such a claim is open. In Palmer v Mullins Investments Pty Ltd,[8] the caveator's interest was as beneficiary under a constructive trust to the extent of $243,000. The constructive trust was asserted to have arisen in respect of the land because the plaintiff had received the moneys from the caveator in breach of fiduciary duties he then owed to the company. The moneys received were substantially invested in the purchase of a property, which was later sold with the proceeds applied to the purchase of a second property, which was the subject of the caveat. The court accepted that a constructive trust in respect of the proceeds of breach of fiduciary duty will not always be declared but it is clearly arguable that such a declaration may be made. Applying Muschinski v Dodds[9] it is no answer at an interlocutory stage of the proceeding for the plaintiff to say that the concept of a constructive trust is purely remedial and incapable of giving rise to a proprietary interest until its declaration.

15 On this basis for the caveat, it is necessary to determine whether there is evidence before me that is capable of supporting findings of fact at trial that might give rise to the constructive trust that is alleged, thereby supporting the caveat.

16 This amended counterclaim is a confusing document, poorly pleaded and riddled with inaccurate references. That exacerbates the failure of Mr Tahmazis to verify the allegations contained within it that are relevant to the interests claimed in the caveat. It will be apparent from what I have said that the evidence before the court on this application was extremely limited. Mostly, it consisted of an unilluminating competitive exchange of correspondence between solicitors. Importantly, Mr Tahmazis has stated that he was not personally seized of all relevant facts and he can do no better than to state:

On the information available to me based on my investigations to date, I believe that my late father Bill Floros, had the caveatable interest which he claimed in caveat no AF952482C and which was lodged by his solicitors George Liberogiannis & Associates.

There is no affidavit from the solicitor who drew the caveat or from any person who, even on information and belief, might be able to verify the cause of action pleaded in the amended counterclaim against Mrs Kambouris relating to the Loch Sport land.

17 The caveator's failure to place such evidence before the court has, unsurprisingly, drawn bare generic denials from Mr and Mrs Kambouris. It is not my function on this application to assess the quality of the response of Mr and Mrs Kambouris. No witness was required for cross-examination. Rather, I must be satisfied that there is at least some probability on the evidence before me that Mr Floros had the equitable rights or interests in the land that are asserted in the caveat. Although the chain of assertions is a little more detailed in the pleading than in the affidavits, I am unable to conclude that there is some probability that these assertions can be made out at trial.

18 Mrs Kambouris deposes that she has never received any 'moneys, equipment, supplies of materials and services' from Mr Floros or his estate and that the claim to a constructive trust is without merit. The affidavits filed on her behalf do not address the source of materials for construction of improvements at Loch Sport. It appears that her husband is a builder and I would infer for the purposes of this application that she is aware of that. Her state of knowledge of the source of construction materials for the dwelling on her Loch Sport property cannot be inferred from the evidence on this application, notwithstanding the limited response that she gave by affidavit and on which she was not cross-examined. It is not clear whether the materials represent the cost of construction of the dwelling or a small proportion of it.

19 An affidavit by Mr Kambouris was read and he has, in general terms, denied the allegations in the counterclaim. Mr Kambouris further states that BTC Developments Pty Ltd went into administration at the end of 2010. Neither the directors' statement of affairs, nor the books of account of the company, which are exhibited by Mr Kambouris, show any claim made by BTC against him, either in respect of the supply of building materials to the Loch Sport property or at all. A bundle of invoices was produced from Bowens Timber and Building Supplies to BTC Developments that show the Loch Sport property as the delivery address for the building materials particularised. Some financial statements for BTC Developments Pty Ltd were also produced but, like the invoices, were inconclusive.

20 The practical effect that the caveat has on the rights of the registered proprietor is another matter on which the evidence was quite unsatisfactory. I was informed from the Bar table that a transfer of the Loch Sport property to a related company was prevented by the caveat. No evidence was produced about the agreement or arrangement by which that transfer of interest is to be effected. I infer that it is not an arms length transaction and it is not demonstrated as being at proper value. Mr Kambouris produces to the court two documents, a letter from Thompsons Lawyers acting on behalf of the National Australia Bank to his wife's solicitor and an estate agent's kerbside appraisal.

21 The first letter reveals that under a deed of settlement Mrs Kambouris is required to pay NAB a settlement sum of $450,000 by 12 noon on 21 September 2012. The deed of settlement provides security on default by Mrs Kambouris' consent to judgment that NAB recovers possession of the Loch Sport land and agreement to pay NAB's costs of the proceeding. Further, the deed permits NAB to pursue Mrs Kambouris, or other guarantors, for any shortfall following the sale of the property. As at 29 May 2012, the indebtedness to the NAB was $522,310.62, exclusive of costs. It infer from this letter that Mrs Kambouris is a guarantor of a facility to the NAB in respect of which a dispute has been resolved that requires the payment described.

22 The second document produced is an estate agent's kerbside appraisal prepared by Henry Geraeds, the officer in effective control of FOB Real Estate, Loch Sport. His assessment of the achievable sale price for the property if offered for sale is $459,000 ― $465,000.

23 This evidence, limited though it is, was not challenged. Albeit with some hesitation, I have concluded that the practical effect of allowing the caveat to remain in place will be to deny the registered proprietor the opportunity to complete the suggested transaction and, more particularly, to pay out the settlement deed with the National Australia Bank. The significant practical effect of the caveat emphasises the need for the caveator to have established on this application some probability that he would establish the interest asserted by the caveat. I am not satisfied that there is any basis to expect that there will be evidence at trial that supports the constructive trust asserted.

24 That conclusion is sufficient to dispose of the application but I will add that I am not persuaded that the balance of convenience favours the caveator. First, on the limited evidence available to me, there does not appear to be any equity in the Loch Sport property that would be lost to the caveator by the proposed transaction. That is so for two reasons. The National Australia Bank has held a registered first mortgage over the property since January 1998, although the terms of that mortgage are not in evidence. The caveator has not suggested any basis upon which he might enjoy priority over the bank in the mortgagee sale that would follow when the bank recovered possession if there was default under the deed of settlement. The settlement sum due to the bank correlates with the real estate agent's kerbside appraisal.

25 That appraisal is predicated upon a usual, and reasonable, marketing campaign rather than a mortgagee's auction. Although there is no evidence about it I can, I think, infer that a lesser price is likely to be obtained if the bank took possession of the property, and sold it. Further, the amount due to the bank, if there is default under the deed of settlement, significantly increases. Thus, it appears that the loss that may be sustained by the registered proprietor if the caveat remains in place is likely to be significantly greater than the value of the alleged trust interest that would no longer be protected if the caveat were removed.

26 For these reasons, I will order that the caveat lodged at the Office of Titles under dealing no AF952482C affecting certificate of title volume 08615 folio 506 of the Register of Land be forthwith removed. I will hear counsel on the question of costs.

[1] Piroshenko v Grojsman [2010] VSC 240; Percy and Michele Pty Ltd v Gangemi [2010] VSC 530; Kearsley v Robson [2011] VSC 50; and Martorella v Innovision Developments Pty Ltd [2011] VSC 282.

[2] Caveats Against dealings in Australia and New Zealand, Shannon Lindsay, The Federation Press 1995 at p 90.

[4] of the kind discussed in Hohol v Hohol [1981] VicRp 24; [1981] VR 221 and Allen v Snyder [1977] 2 NSWLR 684.

[5] Kosta and Duppe Properties Pty Ltd v Duppe [1986] VicRp 9; [1986] VR 90.

[6] R&I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992) 10 WAR 59.

[7] (1874) LR 9 Ch App 244

[8] Unreported, Supreme Court of Western Australia, Murray J (26 June 1992) (BC 9201126). see also George v Biztole Corporation Pty Ltd, Unreported, Supreme Court of Victoria, Ashley J (26 February 1996) (BC9600471).

[9] [1985] HCA 78; (1985) 160 CLR 583, 612-6 (particularly at 614).