Plaintiff v First Defendant

2 The third defendant, the Registrar of Titles, did not participate in the hearing.

3 The parties began a de facto relationship in the Ukraine in 2002 or 2003. They moved to Australia in February 2006. After coming to Australia, the parties married. They are now divorced. On 18 December 2006 a deposit of $10,000 was paid on the property and a contract signed. The plaintiff is nominated as the only purchaser on the contract of sale. On 18 January 2007, the parties began cohabiting in the property pursuant to a license agreement executed between the plaintiff and its vendors. At the end of January, the parties separated, and on 6 February 2007, the plaintiff obtained an interim intervention order against the first defendant restraining him from coming within 200 metres of the property. On 16 February 2007, the plaintiff obtained a mortgage from the Commonwealth Bank of Australia. On 2 March 2007, the plaintiff purchased the property and became the registered proprietor.

4 Subsequently, by a contract of sale dated 5 March 2010, the plaintiff sold the property to a third party, Theresa Kadel for $520,000. Settlement of that transaction was scheduled to take place on 9 April 2010, but has been extended. On 11 March 2010, the first defendant lodged a caveat on the Certificate of Title ('the caveat') pursuant to s 89 of the Transfer of Land Act 1958 ('the Act'). He claimed an estate in fee simple in the property pursuant to an implied trust between himself and the plaintiff. The nature of this implied trust, whether it be resulting or constructive, has not been specified in the first defendant's affidavit or in the oral submissions of his counsel. As best as can be ascertained from his affidavit, he claims that:

a. Part of the property is held by the plaintiff on constructive trust for him by reason of contributions he made to the cost of her relocation from the Ukraine to Australia, her living costs, purchase of chattels for shared residences and certain gifts he gave her and her son during the course of their relationship.

b. Part of the property is held by the plaintiff on resulting trust for him because the deposit paid on the property on 18 December 2006 was paid out of the parties' joint savings.

5 The plaintiff has now brought this action pursuant to s 90(3) of the Act to remove the caveat and allow the sale of the property to proceed.

6 Section 90(3) of the Act permits any person adversely affected by a caveat lodged under s 89 of the Act to 'bring proceedings in a court against the caveator for the removal of the caveat'. Section 90(3) empowers a court dealing with such an application to 'make such order as the court thinks fit'.

7 Caveats under the Torrens system are treated by the courts as analogous to applications for interlocutory injunctive relief. Insofar as their registration is an administrative act, it is when application is made for their removal that the onus falls on the caveator to satisfy the two stage test used by the court when deciding whether to exercise its discretion to grant interlocutory injunctive relief. This approach has been established law in Australia since the decision of Lord Diplock in Eng Mee Yong v. Letchumanan[1] was approved by the Full Court of the Queensland Supreme Court of Appeal in Re Jorss' Caveat.[2] This two stage approach requires the caveator to establish that there is a serious question to be tried that they have the estate or interest which they claim in the land in question, and having done so, to establish that the balance of convenience favours the maintenance of the caveat on the Register of Titles until trial. This is still the approach taken by the courts in Victoria when deciding applications under s 90(3) of the Act.[3]

8 In my decision in Schmidt v 28 Myola Street,[4] I noted that:

...the proper exercise of the discretion under s 90(3) will involve considering: in which party's favour the balance of convenience lies; whether there is a serious question to be tried; and whether the caveator claims an interest wider than what the caveator may be entitled. These questions inform the ultimate consideration, that is, whether the caveator has discharged his or her onus of justifying the maintenance of the caveat.[5]

9 In my judgment, I drew attention to two important issues relevant to deciding applications of this sort. First, at both stages of the test, attention must be directed towards the relationship between the caveat which has been lodged, and the interest which is being claimed, by the caveator. As I noted later in my decision:

It is apparent from the cases that come before this Court that a practice has developed whereby caveators (presumably through their solicitors) immediately opt for an absolute prohibition on dealings with the land.[6]

10 This is such a case; the caveat is an absolute one.

11 Secondly, although the courts have adopted a two-stage test as an aid to the consistent exercise of the discretion conferred by s 90(3) of the Act, the section is drafted broadly, and enjoins the court to make such order as it thinks 'fit'. Any test utilised by the court cannot subsume or restrict the power conferred by the statute. All it can do is 'inform the ultimate consideration', that is, whether the court should exercise the discretion conferred in any particular case, and if it chooses to do so, what form that exercise should take.

12 In order for the first defendant to successfully resist the plaintiff's application, he must first satisfy the court that there is as serious question to be tried that he has the interests in the property which he claims. In order to do so, he must discharge the same onus of proof as he would be required to discharge if he were coming before this court seeking interlocutory injunctive relief in the nature of a caveat.

13 In Australia, two lines of authority have developed addressing what is required in order to discharge the 'serious question to be tried' limb of the test governing injunctive relief. The first requires a prima facie case to be established.[7] The second requires a serious issue to be tried to be established.[8] There have been judicial statements when deciding interlocutory applications to the effect that there is little practical difference between the two.[9]

14 In Schmidt, although I did not consider the 'serious question to be tried' test in detail, I cited Eng Mee Young as good law in Australia. Earlier in the year, the Victorian Court of Appeal affirmed the test set out in that case as the applicable test in Victoria when considering applications for interlocutory relief.[10] I handed down judgment in Schmidt on 19 September 2006. On 28 September 2006, the High Court handed down its decision in Australian Broadcasting Corporation v O'Neill. This decision clarified the burden of proof imposed on an applicant seeking interlocutory injunctive relief by the first limb of the test. Whilst it would not have altered the outcome in Schmidt, it is important that the decision making function conferred by s 90(3) of the Act is now exercised in accordance with the position established by the High Court.

15 In ABC v O'Neill, the court distinguished between the two tests, and directed use of the 'prima facie case' test established by the High Court in Beecham Group Ltd v Bristol Laboratories Pty Ltd[11], in preference to the lower threshold 'serious issue to be tried' test established by the Privy Counsel in American Cyanamid Co v Ethicon Ltd,[12] and followed in Eng Mee Yong, which forms the foundation for the current approach to deciding whether caveats should be removed.

16 Gummow and Hayne JJ, with whom Gleeson CJ and Crennan J concurred on this point,[13] established the level of proof required in order to make out a 'prima facie case' sufficient to justify consideration of interlocutory relief:

By using the phrase 'prima facie case', their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the court continued, in a statement of central importance to this appeal:

How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.[14]

17 Whilst, their Honours discussed the similarities between the two tests, they clarified an important point of difference between the relative onus placed upon the petitioner by each:

However, a difference between this court in Beecham and the House of Lords in American Cyanide lies in the apparent statement by Lord Diplock that, provided the court is satisfied that the plaintiff's claim is not frivolous or vexatious, then there will be a serious question to be tried and this will be sufficient. The critical statement by his Lordship is

[t]he court no doubt must be satisfied that the claim is not frivolous or vexatious, in other words, that there is a serious question to be tried. That was followed by a proposition which appears to reverse matters of onus:

So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought. [Emphasis added]

Those statements do not accord with the doctrine in this court as established by Beecham and should not be followed. They obscure the governing consideration that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.[15]

18 Therefore, consistently, in order for a caveator to satisfy the first limb of the test applied by the courts when deciding applications under s 90(3) of the Act, he or she must satisfy the court that:

1. there is a probability on the evidence before the court that he or she will be found to have the asserted equitable rights or interest; and

2. that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in question in accordance with their normal proprietary rights.

19 In practice, a two-stage test may be a somewhat artificial way of addressing applications under s 90(3). Any assessment of the first limb of the test which depends in part upon a consideration of the practical consequences likely to flow from the maintenance of the caveat in question, cannot but introduce some consideration of the balance of convenience into the assessment of the serious question to be tried, even if that assessment is in a different form to that performed when considering the test's second limb.[16]

20 There was a divergence of opinion within the High Court in ABC v O'Neill on whether the correct test for deciding applications for interlocutory injunctive relief is two-fold or three-fold;[17] the disputed stage being whether damages provide an adequate remedy for the harm which the injunction is purported to prevent. Whilst the courts have always had a special regard for interests in real property,[18] insofar as that divergent opinion relates to applications under s 90(3), I doubt whether the practical difference for present purposes between the two is of any significance. Whether or not this disputed limb is treated as an individual stage in the assessment process, or simply one of the considerations, though a decisive one,[19] to be weighed when assessing the balance of convenience is unlikely to result in a different outcome for the caveator.

21 I find support for the contention that the applicable test under s 90(3) has changed since the decision of the High Court in ABC v O'Neill, and that the courts should now apply a higher standard to the caveator, in the remarks of Lunn J in Union Finance Pty Ltd v Rateki Pty Ltd (No 2).[20] I also note that the prima facie case test I am adopting conforms with an earlier, but well established line of authority in this state for dealing with applications for interlocutory injunctive relief, [21] even if that authority was in abeyance until September 2006.[22]

22 In may be that the courts in Victoria are already deciding applications under s 90(3) by reference to this new, higher test.[23] However, the language used is apt to confuse. For example, the test has been phrased as requiring a caveator to demonstrate 'that there is a prima facie case or serious question to be tried.'[24] [emphasis added]. In order to avoid confusion as to the burden which must be discharged by the caveator, it may be that the courts would be better served by talking of a 'prima facie case giving rise to a serious question to be tried' or even 'a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat' when deciding such applications.

23 Finally, it should be noted that the onus which the caveator must discharge is an onus with respect to an interest or rights in land. A caveat is not a 'bargaining chip'[25]. It is not sufficient for the caveator to establish a prima facie case that they have contractual, equitable or statutory rights against the caveatee; their interest or rights must attach to the property with respect to which the caveat has been lodged.

The remedial constructive trust claimed by the first defendant

24 In his affidavit the first defendant deposes that he paid for the plaintiff to immigrate to Australia,[26] paid a bond, rent in advance, and weekly rent on a property on the Gold Coast inhabited by the parties when they first arrived in Australia in February 2006,[27] paid for the plaintiff and her son to fly to the Ukraine in mid-2006,[28] purchased a wedding ring for her in Australia,[29] and purchased furniture whilst the parties were living in rental accommodation, which was moved into the property when the parties took up residence there pursuant to the license agreement and never recovered by him after their separation.[30]

25 He appears to assert that this requires some part of the property to held by the plaintiff on trust for him.

26 The principles for imposing an unconscionablility constructive trust on the legal owner of property were set out in Muchinkski v Dodds by Deane J,[31] and later adopted by the majority of the High Court in Baumgartner v Baumgartner.[32] Deane J described the circumstances justifying such a remedial legal institution in Muchinkski v Dodds as follows:

[I]n a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that the other party should so enjoy it ... equity will not permit the other party to assert or retain the benefit of the relevant property to the extent to which it would be unconscionable for him to do so.[33]

27 Even taking the evidence of the first defendant at its highest, on no view of the facts as deposed, could it be said that he holds any interest in the property by reason of a remedial constructive trust. The first defendant does not state that he contributed any money towards the purchase or maintenance of the property, except for his assertion that he contributed to the deposit paid on 18 December 2006. The only property which he asserts the defendant is retaining unconscionably and enjoying the benefit of, is the furniture he purchased whilst they were cohabiting in rental accommodation. It may be that a constructive trust exists over this furniture. That is irrelevant to the question of the caveat before the court.

28 The plaintiff and the first defendant cohabited in the property from 18 January 2007 until the end of the January 2007 pursuant to the license agreement. The first defendant does not depose that he made any improvements to the property which would justify the imposition of a remedial constructive trust.

29 Finally, the first defendant does not depose that he supported the plaintiff whilst she saved money to purchase this or any other property, or in any indirect way allowed her the wherewithal to purchase the property, whilst they lived together. Nor does he depose that his payment of migration costs, or rent upon arrival in Australia, was part of any joint endeavour to eventually purchase a family home. I can see no way in which these matters could be related to any rights or an interest in a property which she purchased many months later, and in any event, after the substratum of the relationship giving rise to the gifts no longer existed.

It is ... clear that in order to resist successfully ... applications for removal of caveats the ... arguments must be directed towards the assertion of an interest in the subject land in the light of relevant principles of property and equity law, and that there is no power to alter such law.[34]

31 The plaintiff has not satisfactorily directed his arguments towards the assertion of a constructive trust in the property in the light of any principles known to equity. Leaving aside any question of evidence, he has failed to establish, even were his assertions accepted, that he has such an equitable interest. Therefore, I find that no part of the property is held by the plaintiff for the first defendant pursuant to such a trust, nor would the court be able to impose such a trust according to any accepted principles of equity and trust law.

32 As I already observed, on 18 December 2006, a deposit was paid to the original vendors of the property of $10,000. The plaintiff deposes in her affidavit that she alone paid the deposit.[35] The first defendant deposes in his affidavit that 'the funds used for any deposit were from joint savings'.[36]

33 It is well established in law that where two people provide the purchase money for a property jointly, but the property is put into the name of one of them only, the property is, in the absence of a relationship giving rise to a presumption of advancement, presumed to be held on resulting trust in favour of the unregistered party in proportion to their contribution.[37] Assuming, for the sake of argument, that the first defendant has overcome the presumption of advancement normally applied to the purchase of a property by a husband which is placed in the name of his wife,[38] I am not satisfied that the first defendant has made out a prima facie case of sufficient probability to satisfy me that there is a serious question to be tried in respect of this purported right.

34 In re Caveat No 773; Ex p Hodgson,[39] Cockle CJ said:

I do not think that the Act at all encourages the supposition that when lodging the caveat the caveator is to lie by until it is decided, and not show due diligence in collecting the facts upon which he relies. He should collect facts with due diligence and bring them before the judge.[40]

35 The first defendant lodged his caveat on 11 March 2010. He had until 13 May 2010, the date on which this matter was heard, to collect material in support of his alleged caveatable interest. The only material he has provided in respect of the deposit paid on 18 December 2006 is the unverified assertion in his affidavit that this was paid out of joint funds. In Eng Mee Yong, when discussing the much lower onus placed on a caveator when deciding applications of this nature under the 'serious issue to be tried' test, Lord Diplock said that a caveator's 'bare assertion in an affidavit that he was entitled to ... [an] interest unsupported by any disclosure and verification upon oath of the facts upon which his claim was based' would be insufficient to meet the first limb of that test.[41] In this case, whilst the first defendant has disclosed the basis of his claimed interest, he has not verified it even to the minimum standard required to resist an application under s 90(3). He has had adequate time and opportunity to gather evidence to do so.

36 Therefore, I find that in respect of his claimed resulting trust in the property, the first defendant has failed to satisfy me that he has a prima facie case with sufficient probability of success to justify a caveat being maintained on the Register of Titles in respect of the property.

37 Having found that the plaintiff has failed in respect of both of the equitable interests which he purports to hold in the property, it is unnecessary for me to consider the balance of convenience:

If a prima facie case in the sense in which that expression is used in Beecham's Case ... is not made out, the question of the balance of convenience never arises.[42]

38 If it were necessary for me to do so, I would find that the balance of convenience falls strongly in favour of the plaintiff. When considering the balance of convenience:

...the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been 'wrong', in the sense of granting an injunction to a party who fails to establish his right at trial, or in failing to grant an injunction to a party who succeeds at trial.[43]

39 Put at its highest, the first defendant's case is that he is entitled to a very modest equitable interest in the property. To protect this alleged interest, he has lodged an absolute caveat on the property more than three years after that interest supposedly accrued to him, and more than three years after the parties' relationship ended. Even were his success at trial certain, such an interest could in no way support a caveat framed in such broad terms, or justify frustrating the contract of sale recently entered into by the plaintiff. The rationale for this is obvious. A caveat is in the nature of an interlocutory equitable remedy, and equity will only permit relief to lie to the extent necessary to protect the applicant against the unconscionability involved.[44] Insofar, as the caveat is dependant on the imposition of a constructive trust by the court, I note the court's willingness to impose a lesser remedy in the nature of equitable compensation in cases where the creation of such a trust would prejudice a good faith purchaser of an interest in the disputed property.[45]

40 Again, I reiterate my comments in Schmidt: that a caveat may only be lodged in a form commensurate to the interest it is designed to protect.[46] At the most, the first defendant would have been entitled, on the balance of convenience, to a lesser equitable remedy, for example, an order requiring the plaintiff to hold some of the monies realised through the sale of the property on trust for him pending final determination of the dispute. On no view could it be said that the balance of convenience favoured maintaining such a comprehensive restriction on the plaintiff's rights as sole registered proprietor of the property.

41 The first defendant having failed to establish a prima facie case of any equitable interest in the property with sufficient likelihood of success to justify the maintenance of his caveat, I will order, pursuant to s 90(3), that the caveat be removed.

[1] Eng Mee Yong v Letchumanan [1980] AC 331. Hereafter 'Eng Mee Yong'.

[2] [1982] Qd R 458, 464-5.

[3] Goldstraw v Goldstraw [2002] VSC 491, [30]. Herafter 'Goldstraw'. See also, Theresa Bernstein v George Georgakakis & Anor [2010] VSC 52.

[4] [2006] VSC 343. Hereafter 'Schmidt'.

[7] Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618, 629. See also, Magna Alloys & Research Pty Ltd v Coffey [1981] VicRp 3; [1981] VR 23, 27-28. Hereafter 'Magna'. And, Dataforce Pty Ltd v Brambles Holdings Ltd [1988] VicRp 73; [1988] VR 771, 774. Hereafter 'Dataforce'.

[8] See, for example, Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board of Queensland (1982) 46 ALR 398; 57 ALJR 425; A v Hayden (1984) 56 ALR 73, 78-9; 59 ALJR 1, 4-5. Bradto Pty Ltd v State of Victoria [2006] VSCA 89; [2006] 15 VR 65, 68. Hereafter 'Bradto'.

[9] Transport Workers' Union of Australia v Leon Laidely Pty Ltd [1980] FCA 25; (1980) 28 ALR 589, 600; Praznovsky v Sablyack [1977] VicRp 12; [1977] VR 114, 119-20. Cf. Australian Broadcasting Corporation v O'Neill (No H1/2006) [2006] HCA 46; (2006) 227 CLR 57, 82-4. Hereafter, 'ABC v O'Neil'. See also, Administrative and Clerical Officers Association v Commonwealth (1979) 26 ALR 497, 502; 53 ALJR 588, 591.

[11] [1968] HCA 1; (1968) 118 CLR 618; [1968] ALR 469.

[12] [1975] UKHL 1; [1975] AC 396; [1975] 1 All ER 504.

[16] Bradto, 74. See also, Magna, 110 adopting with approval the comments of Lush J in Slater Walker Superannuation Pty Ltd v Great Boulder Gold Mines Ltd [1979] VicRp 13; [1979] VR 107, 110. Hereafter 'Slater'.

[17] ABC v O'Neill , 68. Cf., 81-4.

[18] See, for example, Adderley v Dixon [1824] EngR 376; (1824) 1 Sim & St 607, 610; [1824] EngR 376; 57 ER 239, 601-11. See also, Dougan v Ley [1946] HCA 3; (1946) 71 CLR 142, 150.

[19] See Hedley v Roberts [1977] VicRp 33; [1977] VR 282, 291-293; Slater, 100. See also American Cyanamid Co. v Ethicon Ltd. [1975] UKHL 1; [1975] AC 396, 408.

[20] [2007] SASC 11, [7].

[23] See Perpetual Trustee Co Ltd v Lindlirim Pty Ltd [2009] VSC 182, 1. See also, Marchesi v Vasiliou [2009] VSC 213, 23.

[31] [1985] HCA 78; (1984) 160 CLR 583, 620.

[32] [1987] HCA 59; (1987) 164 CLR 137.

[33] [1985] HCA 78; (1984) 160 CLR 583, 620.

[34] [1979] VicRp 23; [1979] VR 239, 243.

[37] Calverley v Green [1984] HCA 81; (1984) 155 CLR 242, 246. Hereafter 'Calverly'. See also, Gissing v Gissing [1970] UKHL 3; [1971] AC 886; [1970] 2 All ER 780.

[38] Calverley 247, 256, 267. See also Wirth v Wirth [1956] HCA 71; (1956) 98 CLR 228, 237-8, 241, 245; Soar v Foster [1858] EngR 247; (1858) 4 K & J 152, 160-1.

[39] (1873) 3 QSCR 158.

[40] re Caveat No 773; Ex p Hodgson (1873) 3 QSCR 158, 160.

[44] Giumelli v Giumelli (1999) 196 CLR 1. Hereafter 'Giumelli'. See also, Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566, 585.

[46] See also Lewenberg & Pryles v Direct Acceptance Inc Ltd [1981] VicRp 36; [1981] VR 344.