Plaintiff v First Defendant

2 The Agreement recited that Mr and Mrs White jointly and/or individually owned various assets with a total value of approximately $5.4 million as their matrimonial 'assets pool'. The Agreement provided for the division of those assets and the release by each of them of the other from further property claims under the Family Law Act.

3 In particular, among many other assets, Mr and Mrs White jointly owned two residential properties in Wheelers Hill. Neither property was encumbered. Mr White transferred his joint interest in one of those properties to Mrs White, and she transferred her joint interest in the other property to him. I will refer to the property transferred to Mr White as 'the land'. Other assets, including cash held in joint names, were allocated between the parties in accordance with the Agreement. Finally, Mr White agreed to pay Mrs White the sum of $1,100,000 'within five years of the date of the Agreement ... in such amounts and at such times as may be agreed between the parties from time to time'.[1]

4 The Agreement was put into effect and the assets were transferred as contemplated. Mr White, however, did not pay Mrs White the sum of $1,100,000 within five years. He paid about $243,000 only, leaving a balance of about $867,000. In the meantime, he mortgaged the land three times. First, to the National Australia Bank. Second, to a company associated with him, W & L White Investments Pty Ltd. Third, as guarantor of a loan made to White Investments by Morelend Finance Corporation (Vic) Pty Ltd. All of these mortgages were granted during the five year period.

5 Following the expiration of the five year period, Mrs White lodged a caveat over the land on 19 October 2012, claiming an 'estate in fee simple' pursuant to the Agreement. The Agreement is mistakenly referred to in the caveat as being dated 16 April 2007, rather than 3 May 2007, but nothing turns on that. The caveat purports to prohibit dealings with the property 'absolutely'.

6 Next, in March 2013, Mrs White sued Mr White in the Federal Circuit Court claiming the unpaid balance of about $867,000 owing under the Agreement. Mr White responded by a cross-application to set aside the Agreement on various grounds to which it is unnecessary to refer in these reasons. The claim and cross-claim are part-heard in that Court, but it appears that resolution of the disputes is many months away.

7 In these circumstances, Mr White seeks removal of Mrs White's caveat under s 90(3) of the Transfer of Land Act 1958.

8 Where an application is made under s 90(3) of the Transfer of Land Act to remove a caveat, the caveator is required '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'.[2] In this case, Mrs White does not have the estate or interest which she claims in her caveat, namely, 'an estate in fee simple'. At best, she has an equitable lien securing payment from Mr White under the Agreement. Accordingly, as Mrs White's counsel rightly acknowledged, to avoid removal of the caveat, it is necessary for Mrs White to obtain an order under s 90(3) of the Transfer of Land Act amending her caveat to substitute her claim to an equitable lien.

9 The application was first heard by Sifris J on 25 August 2014 in the Practice Court. On that day, the matter was fully argued and Sifris J determined that:

(1) there was a serious question to be tried as to whether Mrs White possessed a caveatable interest by way of equitable lien over the property;

(2) the Federal Circuit Court had jurisdiction to resolve the issues between the parties, at least by in personam remedies; and

(3) the balance of convenience could not be determined on the current state of the evidence.

10 His Honour did not consider the amendment of caveat issue.

11 His Honour adjourned the application for removal of the caveat to 1 September 2014, in the apparent expectation that the issues would be canvassed at a Federal Circuit Court hearing then fixed for 27 August 2014 or, if not, that further evidence as to the balance of convenience issues would be filed by Mr White before the adjourned return date.

12 In effect, Sifris J gave Mr White two opportunities. First, to ventilate his claim in the Federal Circuit Court on 27 August, which the parties now agree has jurisdiction to protect Mr White's interests by either ordering the Registrar of Titles to remove the caveat or ordering Mrs White to remove it. Second, by filing further material as to the balance of convenience. Mr White took neither opportunity. For unexplained reasons, contrary to the now agreed position, Mr White's family law counsel submitted to the Federal Circuit Court judge that he had no jurisdiction in respect of the caveat issue. Having said that, the transcript of proceedings before the Federal Circuit Court reveals a distinct lack of willingness to deal with the issue on that day in any event - due to the busy state of the list of cases before that Court. Nor did Mr White file further material in this Court concerning the balance of convenience.

13 In these unfortunate circumstances, the part-heard removal of caveat application was heard before me in the Practice Court on 1 September 2014. Two issues remained for determination:

(1) whether the caveat should be amended to properly reflect Mrs White's claimed interest in the property by way of equitable lien to secure the unpaid money due to her by Mr White under the Agreement; and

(2) if so, whether the balance of convenience favoured removal of the caveat.

14 The lack of evidence on the balance of convenience issue placed the Court in a difficult position - requiring it to draw inferences or speculate as to facts relevant to the balance of convenience. In these circumstances, the Court gave Mr White a further opportunity to file further evidence, and for both parties to then file written submissions on the balance of convenience issue. This has now occurred.

15 I will first consider whether Mrs White should be permitted to amend her caveat. If amendment is not allowed, then Mrs White will not have established a serious question to be tried as to the estate or interest claimed in the caveat, and the balance of convenience issue will not arise.

16 A caveat may be removed because it is stated too widely.[3] The authorities on the question are not entirely consistent. They were reviewed by Macaulay J in Percy & Michele Pty Ltd v Gangemi,[4] a case bearing a factual similarity to this one, in that the caveat claimed an estate in fee simple but the only arguable interest was for an equitable lien. Macaulay J stated that 'there is force in the argument that s 90(3) should not be construed so as to empower the court to amend a caveat by substituting an entirely different estate or interest claimed'.[5] That, of course, is what Mrs White seeks to do in this case, as did the caveator in that case.

17 Macaulay J also had regard to the wide and unqualified terms of s 90(3) of the Transfer of Land Act, however, which empower the Court to 'make such order as the Court thinks fit' on the hearing of an application to remove a caveat. Macaulay J expressed the view that, when asked to exercise a discretion to amend the caveat, 'the court should generally be less inclined to amend the interest or estate claimed than to amend the grounds of the claim or the scope of the protection asserted'.[6] Macaulay J summarised the factors to be taken into account in the exercise of discretion, in the following way:

1. So what are the factors which should be taken into account in the exercise of discretion? As I say, the first and a powerful one, is the fact that the amendment sought is to the interest claimed and not just the grounds of claim or the scope of the protection. Secondly, I have regard to the circumstances in which the error was made. Mr Gangemi was at all relevant times represented by lawyers and had legal advice available to him. He nonetheless lodged the caveat on his own behalf. It cannot sensibly be said that he should be given some leeway due to legal ignorance or unavailability of legal advice. Next I am of the view that the court should not readily act in a way which might encourage the belief that caveats can be imprecisely formulated and then 'fixed up later'. As has been pointed out, caveats act as an interlocutory injunction (albeit by an administrative act) and can have powerful and serious consequences. Wrongly formulated caveats should not easily be tolerated.
2. Finally, of course, the court should have regard to the overall merits of the claim for a caveatable interest of the kind which is sought by the amendment. In other words, it should have regard to all of the same considerations which arise on the application of removal for a caveat in the terms sought. This then brings into play all of the matters which I am about to discuss on the question of removal (assuming I am prepared to allow the amendment).[7]

18 Leave to amend the caveat was refused in that case.

19 In Martorella v Innovision Developments Pty Ltd,[8] another case where the caveat claimed an estate in fee simple when only an equitable lien was arguable, Dixon J agreed with the approach of Macaulay J in Percy & Michele.[9] Based on Macaulay J's reasoning, Dixon J identified four relevant matters going to discretion:

• the amendment sought is to the interest claimed and not just the grounds of claim or the scope of the protection;
• the circumstances in which the error was made;
• the court should not readily act in a way which might encourage the belief that caveats can be imprecisely formulated and then 'fixed up later'. As has been pointed out, caveats act as an interlocutory injunction (albeit by an administrative act) and can have powerful and serious consequences. Wrongly formulated caveats should not easily be tolerated; and
• the overall merits of the claim for a caveatable interest of the kind that is sought by the amendment. In other words, the court should have regard to all of the same considerations that arise on applying for removal of a caveat in the terms sought.[10]

20 Dixon J concluded that, in order to determine the application before him, he did '[not] need to read down the wide language' of s 90(3) to deny a power to amend the estate or interest claimed by the caveat. He continued:

1. ... There may be circumstances where the power can properly be exercised for that purpose. For the reasons I have stated above, where the amendment sought is to the estate or interest claimed, and not just the grounds of claim or the scope of the protection, the circumstances where amendment will be permitted will likely be special or exceptional. The nature of the amendment sought will always be a relevant and important consideration. The need to exercise care in drafting caveats remains.[11]

21 In that case also, Dixon J refused to amend the caveat and it was removed.

22 In both Percy v Michele[12] and Martorella,[13] consideration was given to the overall merits of the claim for a caveatable interest and the balance of convenience. This was done because it is relevant to the fourth discretionary factor which those cases identified. As the parties agree that Sifris J determined there was a serious question to be tried as to a caveatable interest in the form of the amendment sought by Mrs White, I proceed to consider the balance of convenience.

23 Mr White contends that the balance of convenience favours both refusal of the amendment and removal of the caveat. He relies principally upon a 'Notice to Pay' served on him and White Investments by Morelend Finance dated 19 August 2014. In that notice, Morelend claims that: (1) its loan to White Investments is in default; (2) the whole of the loan and interest at the default of 22 per cent per annum is now due; and (3) White Investments is also in default because of Mrs White's caveat. Unusually, the Notice to Pay gives White Investments, and Mr White as its guarantor, two alternative means of remedying the default - either pay the whole of the amount outstanding with interest ($868,575.34) 'or' remedy the default constituted by Mrs White's caveat remaining on the title to the land.

24 There is now evidence before the Court from Mr White's solicitor as to the circumstances in which Morelend has specified that Mr White's default may be remedied by removing Mrs White's caveat. Mr White's solicitor has deposed that she believes the land is worth about $1 million, that the first mortgagee (NAB) is owed about $350,000, that there is no amount owing on the second mortgage to White Investments, that the Morelend loan has been in default since early 2011, but that Morelend has not taken any steps towards selling the property prior to the notice to pay referred to above. Mr White's solicitor deposed to the following conversations relating to the terms of the notice to pay:

I am informed by Sazz Nasimi, a senior associate of this firm, and believe, that shortly before the demand from Morelend was served upon Mr White on or about 19 August 2014, he had (on behalf of Mr White) had a telephone discussion with Michael Landy, a director of Morelend, in which he disclosed to Mr Landy the existence of the Amended Initiating Application filed by Mrs White in the Federal Circuit Court proceeding ... and in particular that Mrs White was seeking orders that [the land] be transferred to her for her to sell and that the proceeds of any sale be paid to her ahead of Morelend. I am informed by Mr Nasimi (and believe) that Mr Landy said to Mr Nasimi words to the effect that while he had been happy not to proceed against Mr White on the basis that Morelend had adequate security, if that security was under threat from Mrs White, Morelend would proceed to enforce its rights; Mr Landy then said words to the effect that unless the caveat lodged by Mrs White was removed from the title to [the land] Morelend would seek to enforce its mortgage immediately.[14]

25 Mr White's solicitor also deposed in her affidavit that the loan agreement between Morelend and White Investments provided for three separate securities, only one of which was the mortgage by Mr White to Morelend over the land in support of his guarantee of the loan.

26 In these circumstances, the unusual nature of the notice to pay has been explained. It is understandable that Morelend would not wish to become involved in a priority dispute with Mrs White should that become necessary. There is no evidence that Morelend took its mortgage with notice of Mrs White's claim to an equitable lien, or to any interest in the land. In these circumstances, Mr White contends that there is 'a real and appreciable risk that Morelend will cause him to lose possession of his home in the immediately foreseeable future' if the caveat remains. Moreover, as counsel for Mr White points out in submissions concerning the balance of convenience, because Morelend's mortgage is not registered, it would need to apply to the Court and obtain orders for a judicial sale of the land.[15] Mrs White will be entitled to notice of such an application and, should she wish to pursue a claim that her interest has priority over Morelend's interest, she will have a full opportunity to argue her case. Further, if Mrs White wishes to preserve her present position, her solicitors can put the NAB and Morelend on notice of her claim.

27 On behalf of Mrs White, it was contended that there are a still number of unexplained matters surrounding the form of the notice to pay given by Morelend. I agree that that is so, but I am not prepared to infer, on the evidence before me, that there has been collusion between Mr White and Morelend to bring about a situation where a false sense of urgency has been created.

28 Taking the evidence as a whole, the balance of convenience favours removal of the caveat, even if it had claimed an equitable lien in accordance with the proposed amendment. On the evidence as it stands, removal of the caveat will have the effect of causing Morelend to bide its time, rather than apply to the Court for a judicial sale. An application for judicial sale would increase Morelend's costs, and thus Mr White's personal liability if there is insufficient equity in the land, and other securities for the Morelend loan, to meet those costs.

29 Mrs White's interests can be protected by her advising the prior mortgagees (NAB, White Investments and Morelend) of her claimed interest and of her claims in the Federal Circuit Court to the land. Further, the Court can protect Mrs White's interests by restraining Mr White from further encumbering the land until the hearing and determination of the proceeding in the Federal Circuit Court or further order of that Court. I intend to proceed in that fashion. In deciding on this course of action, I note the submissions on Mr White's behalf that, given the levels of debt secured on the land, there is 'no realistic prospect that Mr White would be able to further encumber the [land] to the detriment of Mrs White's asserted rights as equitable lienee'.[16] That may be so, but in a bitter family dispute it is preferable to be cautious - especially where Mr White has not disclosed all relevant facts, the proceeding in the Federal Circuit Court continues, and the parties informed this Court that Mrs White's caveat was the sticking point in negotiations in the Federal Circuit Court.

30 Accordingly, the application to amend the caveat is refused. The caveat will be removed. The Court will order that Mr White be restrained from further encumbering the land until the hearing and determination of the Federal Circuit Court proceeding or further order of this Court or that Court.

[2] Piroshenko v Grojsman (2010) 27 VR 489, 491 (Warren CJ).

[3] Midwarren Estates Pty Ltd v Retek & Stivic [1975] VicRp 56; [1975] VR 575; Percy & Michele Pty Ltd v Gangemi [2010] VSC 530; Martorella v Innovision Developments Pty Ltd [2011] VSC 282.

[4] [2010] VSC 530.

[8] [2011] VSC 282.

[12] [2010] VSC 530.

[13] [2011] VSC 282.

[14] Affidavit, Kirsten Leanne Hawker, [13].

[15] For example, Avco Financial Services Ltd v White [1977] VR 561, 564; Property Law Act 1958 (Vic), s 91(4).

[16] Plaintiff's written submissions concerning balance of convenience, 3 September 2014, [8].