Plaintiff v First Defendant

"(50% share in the property)

An estate in Fee simple."

"50% partner of registered proprietor pursuant to deed of agreement between proprietor and caveator."

8 Each caveat then went on to state that the extent of the prohibition was "absolutely".

9 On the face of each caveat, the interest claimed may be misdescribed and the grounds of claim are clearly misdescribed. I will return to these questions later.

Principles - to remove caveat

10 Section 90(3) of the Act provides:

"(3) Any person who is adversely affected by any such caveat may bring proceedings in the Court against the caveator for the removal of the caveat and the Court may make such order as the Court thinks fit."

11 The plaintiff wishes to sell the two properties which apparently constitute the only assets of the unit trust, in order for the liquidators to honour their obligations to wind up the company, which involves bringing in the property and realising it. On the affidavit material, the main purpose appears to be payment of the liquidators' fees.

12 The Act confers title by registration. Under the principle of immediate indefeasibility, the caveat provides protection from registration of a competing interest. See Frazer v Walker[1] and Breskvar v Wall.[2] The main purpose of a caveat is to protect the caveator's interest from being defeated by the registration of another dealing. The caveat provides protection, in that the caveator is given notice of the new dealing and is given the opportunity to issue a court proceeding to obtain an order to give effect to his interest. The caveat procedure provides an interim protection, freezing the position until that opportunity is taken. See Miller v Minister of Mines.[3] In Leros Pty Ltd v Terara Pty Ltd,[4] Mason CJ, Dawson and McHugh JJ[5] described the purpose of a caveat as follows:

"The purpose of a caveat, as stated earlier, is to operate as an injunction against registration of an inconsistent dealing otherwise than in accordance with the caveat so as to enable, in the ultimate analysis, a determination of the conflicting claims."

13 In considering an application such as the present, the first matters for the Court to consider are the terms of the caveat, whether it discloses a caveatable interest, and whether there is any evidence to support that caveatable interest.

Caveatable interest

14 It is clear from the evidence before the Court that the grounds of claim are not correctly stated, and there is some doubt as to whether the description of the interest in the land is correct.

15 The Court has power to amend a caveat. See In Re the Victorian Farmers' Loan and Agency Co Limited,[6] Queensland Estates Pty Ltd v Co-Ownership Land Development Pty Limited,[7] and Midwarren Estates v Retek.[8] In the 1897 Full Court decision, the Court was of the view that it had power under the equivalent of s.90(3) to amend the caveat. The present application is made under s.90(3) and on such an application "the Court may make such order as the Court thinks fit". (Emphasis added). This gives a wide power to the Court to amend the caveat.

16 In Midwarren Estates v Retek,[9] Menhennitt J was of the view that s.90(3) did not authorise an amendment which would result in the substitution of an entirely inconsistent estate or interest. In my view, each caveat claimed an interest, namely, 50% share in the property which, of course, refers back to the description of the land and that "an estate in fee simple" is claimed. In my view, the description reveals to any person who reads the caveat the nature of it. I think the grounds of claim are incorrectly stated and I am prepared to grant leave to Mr Malhotra to amend the grounds of claim, to make clear that he claims a half interest in the property as a unit holder in a unit trust.

17 There is no doubt that the caveat claimed what is a caveatable interest in the real estate.

18 The next question is whether the evidence supported the caveatable interest claimed.

19 The plaintiff company was incorporated on 29 July 1996. It was the trustee of a unit trust. The trust deed was executed on 29 July 1996 by the plaintiff as trustee and a unit holder, Ms Sheela Tiwari. Ms Tiwari and Mr Malhotra were married. On 17 March 2002, Ms Tiwari transferred to Mr Malhotra units in the fund constituted by the trust deed. Ms Tiwari was initially the holder of 100 units and the transfer apparently was in respect of 50 units. The marriage of Mr Malhotra and Ms Tiwari broke down and Mr Malhotra brought a proceeding in this Court against Ms Tiwari and the plaintiff, as trustee of the unit trust, seeking orders recognising his rights to the trust property and the units in the unit trust. The trial took place before Balmford J and on 4 March 2005, a judgment was given in favour of Mr Malhotra, the effect of which was that he obtained a declaration that he had 50 units in the unit trust.

20 Clause 4 of the trust deed provides:

"4. The trustee shall hold the Trust Fund in trust for the registered holders upon the terms and subject to the provisions of this deed."

21 The two properties over which Mr Malhotra has lodged caveats form the bulk of the trust fund of the trust.

22 The law is clear. A holder of a unit in a unit trust has an equitable interest in all the property of the trust, subject, of course, to the terms of the trust deed. See Read v Commonwealth,[10] and Costa and Duppe Properties Pty Ltd v Duppe.[11] There is no doubt that a unit holder has a proprietary interest in the assets of the trust fund, and the two pieces of land in question form the trust fund. Those general principles, of course, are subject to the particular provisions of the trust deed. Counsel for the respective parties agreed that in the light of the well established principles and the terms of the trust deed, Mr Malhotra had at least a half interest in each of the properties and accordingly, he had, on the evidence, a caveatable interest.

23 Having reached that conclusion, in the normal run of the mill case, that would be the end of this application. In other words, the application to have the caveats removed would be dismissed. However, the Court has a discretion and the power given to the Court under s.90(3) is an extremely wide one, and even though the Court may be of the view that the caveator has a caveatable interest, and the evidence supports it, nevertheless it may make an order in particular circumstances that the caveat be removed. It cannot be overlooked that the caveat is purely and simply a procedure available to require that notice be given to a person claiming an interest in property and to enable that person to bring a proceeding enforcing that interest. In the meantime, the position is frozen until that opportunity is taken. However, an order can be made in some circumstances requiring the removal of a caveat, but ensuring that the interests of the caveator are protected. In other words, the Court can mould an order to protect the interests of all parties. Sometimes, the circumstances are such that justice requires the removal of the caveat, but the Court is able to protect the interests of the caveator.

24 In this present application, the plaintiff seeks an order because of particular circumstances. It is now necessary to state the circumstances.

25 As stated, Mr Malhotra was successful in his proceeding in this Court and judgment was given in his favour on 4 March 2005. Subsequently to that, Stirling Lindley Horne and Peter Robert Vince, accountants, were appointed joint voluntary administrators of the plaintiff by its directors, in accordance with s.436A of the Corporations Act ("the Act"). By a resolution of the plaintiff's creditors passed on 29 June 2005, they were appointed voluntary liquidators of the plaintiff pursuant to s.439C of the Act. By this time, Mr Malhotra and his former wife were continuing their dispute after the break-up of the marriage, and Mr Malhotra brought a proceeding in this Court to terminate the liquidation. Mr Malhotra joined his former wife, the liquidators and a third defendant who did not take part in the proceeding. The matter was heard by Mandie J between 26 September and 2 November 2005. On 22 December 2005, his Honour published his reasons. At some time during the course of the interlocutory skirmishes, injunctions were granted restraining the liquidators from selling the real estate and business of the trust. His Honour dismissed the proceeding and the injunctions restraining the liquidators were discharged. The effect of the judgment was that the liquidation continued and the restraints placed upon the liquidators were removed.

26 Mr Malhotra delivered a notice of appeal dated 16 January 2006. The appeal has not been fixed for hearing. One of the orders sought on the appeal is that the liquidation of the plaintiff be terminated or, alternatively, stayed.

27 No application has been made to the Court of Appeal for any form of order in effect staying the orders made by Mandie J.

28 In January 2006, the plaintiff's solicitors made application pursuant to s.89A of the Act to the Registrar of Titles. After consideration of the application and the certificates provided, the Registrar of Titles declined to take any steps to remove the caveats under that section. This was because of the appeal by Mr Malhotra.

29 What the liquidators seek to do is to continue with the winding up. This involves, inter alia, getting in the property and realising it. Hence, the application to remove the caveats is to enable the real estate to be sold. The prohibition sought by Mr Malhotra as a caveator is that any dealing with each piece of real estate is absolutely prohibited. It is submitted that the scope of the caveat is far too wide. It is submitted that it goes beyond the legitimate claim necessary to protect the caveator's rights and should not be allowed to stand. What is put on behalf of the liquidators as those in charge of the trustee company, namely, the plaintiff, is that although the trust holds the trust fund in trust for the registered holders, which include Mr Malhotra, nevertheless that obligation is subject to the terms and provisions of the deed. Clause 8 relates to the trustee's powers and it provides, inter alia:

"8. The trustee shall have the following absolute powers and discretions which it may exercise itself and jointly with any other person or persons:

(iii) to purchase, ... or otherwise acquire any lands and buildings ... and to sell ... such property or rights or any of them or any part thereof."

30 It is clear that the trustee's powers are wide and that their exercise is a matter for the trustee's discretion. In addition, clause 7.5 provides an indemnity to the trustee.

31 It is the contention of the liquidators that they are obliged to wind up the trust and to realise the property in the trust fund to, inter alia, provide funds to indemnify the trustee. It is submitted that by reason of clause 7.5, the interest of the unit holders is subject to the right of indemnity provided by that sub-clause. In my opinion, it is strongly arguable that the interest of the unit holders is subject to that right of indemnity. Mr Randall of counsel on behalf of the liquidators, that is, the plaintiff company, submitted that there was also an obligation to the creditors to wind up the company and pay them. However, the evidence in relation to that question was not contained in the affidavit material. Mr Randall referred to parts of Mandie J's reasons indicating that there were secured creditors and that after they were paid there was a sum of approximately $400,000 left over in the trust fund, but that there were also unsecured creditors, which included the liquidators' remuneration, owed a sum totalling some $700,000. However, as Mr Boaden of counsel, who appeared for Mr Malhotra, pointed out, there was no affidavit material stating that that was the reason why the liquidators wished to proceed, and I think it is a fair inference from the submissions put by Mr Randall that the real object of the exercise is to provide funds for the liquidators' remuneration. Given the rights of the parties, there is force in the submissions by Mr Randall that the caveat should be removed so that the fund can be wound up, thereby providing funds to the creditors and limiting the interest payable under various loan arrangements, and that Mr Malhotra would be protected by an order requiring the liquidators to hold the balance of the fund (if any) in trust for him as a unit holder.

32 The matter which caused me to reserve my decision was the question of the appeal by Mr Malhotra. What he seeks is the setting aside of the orders made by Mandie J and an order that the liquidation terminate. If successful, the effect of that would be that the plaintiff company would revert back to the control of the directors. Mr Malhotra was a director. If the Court was to remove the caveats, and if Mr Malhotra was successful on his appeal, it may be too late so that the appeal would be a barren exercise and the result, nugatory. That has always been accepted as a basis for granting a stay pending the outcome of an appeal. Mr Randall submitted that Mr Malhotra should make application to the Court of Appeal seeking some form of order in effect staying the operation of Mandie J's dismissal, and thereby pave the way for some injunctive relief against the liquidators. But in my opinion, that is an issue that I must decide on this application. Mr Malhotra's caveats have the practical effect of restraining the liquidators from winding up the trust fund. It was submitted that the reality is that the trust fund is insolvent and there is no question of Mr Malhotra having any real control if he was to succeed in the appeal, because steps would be taken to wind up the company in any event by a creditor, for example, or because the directors and shareholders would be unable to agree on the conduct of the company. Evidently, the shareholders and the directors were Mr Malhotra and his former wife. There may be some substance in that argument. However, it is not for me sitting on this application to second-guess what might happen on the appeal. I am not in a position to make some assessment of the outcome of the appeal.

33 In the end, it is a question of the balance of convenience. If I remove the caveats then the liquidators will proceed and will wind up the trust fund, and the probabilities are high that there will be nothing left for Mr Malhotra. If that is done and if he was to succeed in his appeal, it would be of no benefit to him. On the other hand, if I refuse in the exercise of my discretion to remove the caveats then the winding up will to some extent be on hold until the hearing of the appeal. Whilst the parties were unable to say when the appeal would be heard, appeals are now normally reached and heard within 14 months of lodging the notice of appeal. Accordingly, the delay is in the order of about seven months.

34 In my opinion, the balance of convenience favours Mr Malhotra and accordingly I am not prepared to order that the caveats be removed.

35 Subject to submissions by counsel, I propose to order:

(i) That the first defendant have leave to amend each of the caveats in dealing numbered AB226484J and AB226485G respectively lodged in the Office of Titles on 8 April 2002 by substituting for the grounds the following:

"An half interest as a beneficial holder of 50 units in a Unit Trust established by Deed on 29 July 1996."

(ii) That the proceeding be dismissed.

(iii) That the plaintiff pay the first defendant's costs including reserved costs.

[1] [1967] 1 AC 569.

[2] (1971) 126 CLR 376.

[3] [1963] AC 484.

[4] [1992] HCA 22; (1992) 174 CLR 407.

[5] At p.422.

[6] [1897] VicLawRp 117; (1897) 22 VLR 629.

[7] [1969] Qd R 150.

[8] [1975] VicRp 56; [1975] VR 575 at 576-7.

[9] Supra at p.577.

[10] [1988] HCA 26; (1988) 167 CLR 57 at 61-2.

[11] [1986] VicRp 9; [1986] VR 90 at 92.