Plaintiff v First Defendant

Sharrment Pty Ltd and ors v Official Trustee in Bankruptcy [1988] FCA 179; (1988) 18 FCR 449; Jacobs v Platt Nominees Pty Ltd and ors [1990] VicRp 14; [1990] VR 146; Black Uhlans Incorporated v New South Wales Crime Commission and ors [2002] NSWSC 1060 considered and applied.

1 This trial concerned four competing claims in respect of the sum of $224,900.48 which was paid in to Court on 24 April 2013 following a mortgagee sale.

2 The property that was sold is known as 29 Stanley Street, Brunswick ('Stanley St' or 'the property'). The registered proprietor of the property from 25 May 1999 was Mr Milic Milenkovic, the husband of the plaintiff. The plaintiff contends that Mr Milenkovic executed an Acknowledgement of Trust in her favour on or about 2 June 1999 by which he declared and acknowledged that he held a one-half undivided interest in the property on trust for her.

3 The plaintiff also contends that in November 2005 her husband charged his remaining interest in the property as security for repayment to her of a loan of $150,000 which she made to him. The plaintiff contends that by the last date of her calculations of the amount outstanding, 1 September 2012, the amount outstanding under this loan agreement was $280,754.58.[1] As is plain, that sum alone exceeds the amount in funds in court, irrespective of the plaintiff's claimed interest by way of trust. The plaintiff did not lodge a caveat in respect of any claimed interest in the property until 19 January 2011. The caveat she lodged on that date referred to an interest by way of constructive trust only i.e. it did not, in terms, refer to either of the documents on which she now relies.

4 The plaintiff claims the whole of the funds in court.

5 The first and second defendants are solicitors who practice in a firm Belleli King & Associates ('BKA'). The first defendant acted for Mr Milenkovic and a company associated with him in a proceeding in the Victorian Civil and Administrative Tribunal ('VCAT' or 'the Tribunal') from 2005 to February 2008. They claim an interest in the funds in court pursuant to a charge granted to BKA by Mr Milenkovic on 21 June 2006 in respect of legal costs he had incurred and was to incur in the course of that proceeding. BKA lodged a caveat on the property claiming an interest under this charge on 29 February 2008. The first and second defendants say that they were unaware of the plaintiff's claimed interests at the time of their charge in June 2006, and also at the time that they lodged their caveat in February 2008.

6 BKA obtained a judgment from the Magistrates' Court for unpaid legal fees against Mr Milenkovic on 14 January 2009 for $49,263.97. BKA, by this stage a caveator in respect of Stanley St, was notified by Westpac on 23 July 2009 that Mr Milenkovic was in default under its first registered mortgage. BKA unsuccessfully sought to enforce its judgment by warrant issued from the Magistrates Court in November 2009. BKA then obtained from this Court on or about 4 May 2010 a warrant of seizure and sale of Mr Milenkovic's interest in Stanley St. Mr Belleli says that he searched the title when he caused that warrant to issue. Search of the title to Stanley St at that time would not have shown any claimed interest by the plaintiff. She lodged her caveat on 19 January 2011, the day before the Sheriff's auction pursuant to the warrant.

7 The third defendant ('Legal Chicks') is a service company for BKA. The first and second defendants are directors of Legal Chicks. The Sheriff conducted a sale of Mr Milencovic's interest in Stanley St by auction on 20 January 2011. The third defendant purchased what was expressed to be 'all my estate in fee simple in the land' from Mr Milenkovic, by transfer from the Sheriff on that day, for $23,000. Mr Belleli did not conduct a title search of Stanley St immediately prior to the auction. The Sheriff paid the amount paid by Legal Chicks, less his costs, to the first and second defendants in partial satisfaction of the judgment.

8 The balance of the judgment in favour of BKA, together with further costs and interest, remains unsatisfied. The first and second defendants seek payment out from the funds in court of the sum secured by the charge granted to BKA, less the amount paid to them pursuant to the Sheriff's auction.

9 Legal Chicks seeks the balance of the funds following payment to the first and second defendants on the basis that Mr Milenkovic as registered proprietor would have been entitled to the balance of the funds, and Legal Chicks purchased his interest at the Sheriff's auction. The claim by Legal Chicks assumes that the plaintiff's claimed interests are not proved.

10 Legal Chicks lodged a caveat on the title recording its interest as purchaser at the Sheriff sale on 20 January 2011, and sought and obtained the consent of Westpac to register the transfer. Mr Belleli contends that he only became aware of the plaintiff's caveat, lodged 19 January 2011, when the transfer was lodged for registration.[2] Sale of the property at the instance of Westpac as mortgagee in possession took place in March 2012, and settled on 9 May 2012.[3] For reasons that are not clear, the transfer reflecting that sale was not registered until 17 October 2012. As the plaintiff and the defendants were unable to reach agreement as to payment of the surplus, the mortgagee paid those funds into court in April 2013.

11 Both of the interests claimed by the plaintiff precede in time the interests claimed by the first and second defendants and by the third defendant. The defendants do not admit the interests claimed by the plaintiff. In the alternative, they contend that if the documents on which she relies are proved, they were not intended to create the legally enforceable rights and obligations that they purport to create. The defendants submit that, in this sense, the documents were shams.

12 In the further alternative, if one or both of the plaintiff's claimed interests is proved, the defendants claim that their interests should take priority.

13 In respect of the interests claimed by the defendants, the plaintiff concedes that Mr Milenkovic executed the charge on which the first and second defendants rely. She disputes the nature of what was secured, and its amount. In relation to the third defendant, the plaintiff concedes that Legal Chicks acquired an interest by reason of the Sheriff's auction. She disputes, however, the extent of the interest so acquired. The plaintiff asserts that her interests should take priority as being first in time.

14 First, I express my regret and my apologies to the parties for the delay in the delivery of these reasons for judgment.

15 The proceeding commenced by originating motion filed by the plaintiff. I subsequently directed that the parties file pleadings. The evidence in chief was given on affidavit. The evidence was transcribed, but unfortunately there is no transcript of the final day, 31 March 2014, on which day counsel spoke to their written closing submissions. I did, however, take notes of the points on which the parties diverged from or elaborated their written closing submissions, and those notes can be made available if typed form if required.

16 On that day, the defendants sought leave to amend their Points of Defence and Counterclaim so as to make explicit in their pleading what had been agitated by their written opening submissions and cross examination of the plaintiff and Mr Milenkovic. I granted that leave, which was, after consideration by counsel for the plaintiff, not opposed. Counsel for the plaintiff withdrew those aspects of his written closing submissions which contended that the defendants should be held to their original pleading. By Points of Amended Defence and Counterclaim sent to the Court by email on 2 April 2014 the defendants contend that if the Acknowledgement of Trust was executed as alleged (which is not admitted) then the plaintiff and Mr Milenkovic did not intend it to effect any change in Mr Milenkovic's legal or beneficial ownership of the property. They similarly contend that if the loan agreement on which the plaintiff relies was executed as alleged (which is not admitted) then the plaintiff and Mr Milenkovic did not intend it to create a relationship of lender and borrower between them.

17 In respect of the disputes as to whether the plaintiff's interests were created, whether or not the first defendant ('Mr Belleli') was on notice of the plaintiff's claimed interests, and whether he disclosed the BKA Charge to the plaintiff at an early stage, there are substantial issues of credit that arise.

18 On these issues witnesses gave directly conflicting evidence. The defendants submit that the plaintiff and Mr Milenkovic were untruthful on these matters. They rely on what they say was untruthfulness in relation to priority of the competing interests. It has accordingly been necessary to assess the reliability of the contested evidence, including, where a submission to that effect is put, whether or not it is likely truthful. This determination is also relevant to the credit of those witnesses generally.

19 Five witnesses gave evidence. The only two whose evidence I accept without reservation are Ms Stankovska, in the plaintiff's case, and Mr Rewell, in the defendants' case. Both of those witnesses were relatively disinterested in the outcome, and each gave straightforward and convincing evidence. For reasons that I will elaborate later in detail, I have concluded that the evidence given by the plaintiff and Mr Milenkovic that they disclosed her claimed interests in the property to the first defendant at a meeting in June 2006, inferentially before Mr Milenkovic gave the defendants their charge, is not correct. I also find that, at least in the case of the plaintiff, it is untruthful. In the case of Mr Milenkovic, I think it likely that the evidence is deliberately untrue. I distinguish between them having regard to the nature of their evidence generally.

20 In the case of the plaintiff, generally she gave her evidence in a very disciplined and self-contained manner. That degree of care suggests that evidence I have found to be incorrect, is deliberately so. Further, the plaintiff under cross examination effectively excluded the possibility of mere faulty recall.[4] Mr Milenkovic's evidence on this claimed meeting essentially duplicated that of the plaintiff, but with less apparent independent recall. He gave most of his evidence in a rambling, often unresponsive, manner which showed abiding deep anger at the outcome of the VCAT proceeding and the legal fees charged by his former solicitor, the first defendant. I think it likely that this anger and his desire to support his wife's case has at best coloured his recall, and at worst led him to give untruthful evidence.

21 This conclusion is relevant to my assessment of the evidence of the plaintiff and Mr Milenkovic generally. Nevertheless I do accept their evidence in other respects, even if not independently corroborated, in particular in relation to their evidence of events less directly related in time and context to the VCAT litigation in which the first defendant acted for Mr Milenkovic.

22 In relation to Mr Belleli, I do not accept his evidence that he referred to the charge that his firm had taken over the property for legal costs, in a meeting with the plaintiff and Mr Milenkovic a month after it had been given. I find that this evidence is unreliable. Mr Belleli's recollection of relevant events was poor, and generally I accept his evidence only where supported by other evidence.

23 The parties agree that the issues they ventilate can be broadly summarised as follows:

Plaintiff's assertion of an acknowledgement of trust ('Milenkovic Trust')

1. Was the deed purporting to acknowledge the trust executed as claimed?
2. If so, was it, as the defendants contend, a sham?

Plaintiff's claim of a charge over Mr Milenkovic's interest in the property ('Loan Agreement' and 'Charge')

1. Was the Loan Agreement executed as claimed?
2. If so, was it, as the defendants contend, a sham?
3. If given and not a sham, what is the amount of the debt which it secures?

Defendants' claim of a charge in June 2006 ('BKA Charge')

1. What interest of Mr Milenkovic in Stanley St was charged?
2. Did the charge secure the legal costs of Belleli King & Associates ('BKA') or only disbursements?
3. What is the amount of the debt which it secures?

Claimed interest by Legal Chicks ('Legal Chicks' interest')

9. What interest in the property did Legal Chicks acquire as purchaser at the Sheriff's auction?

1. Was Mr Belleli on notice of the plaintiff's claimed interest at the time of the BKA Charge?
2. In what priority are the proved interests entitled to payment out from funds in court?

24 For the detailed reasons which follow, I find that the plaintiff and her husband did execute the Acknowledgement of Trust on or about the date it bears. I find that they intended thereby to document what they both acknowledged to be the plaintiff's existing half interest in the property. In other words, I find that the plaintiff did have a half interest in the property prior to the BKA Charge and the sale of Mr Milenkovic's interest in the property to Legal Chicks at the Sheriff's auction.

25 I find that the plaintiff and her husband also executed the Loan Agreement and Charge on or about the date it bears, 28 November 2005. However, I do not consider that they intended the loans subsequently made or the charge to be legally enforceable. I consider that the effect of the document was to record a personal, although not legally enforceable, arrangement or understanding as between them.

26 There is no dispute that Mr Milenkovic signed the BKA Charge on the day it bears. I find that the BKA Charge secured solicitors' fees as well as disbursements, and that as at 31 March 2014 the amount so secured was $43,431.55.

27 I consider that the defendants have not shown that the plaintiff's interest pursuant to the trust should be postponed to either of their interests. Accordingly, I will order that one half of the funds in court be paid to the plaintiff, and, of the remaining half, the amount now owed under the BKA Charge be paid to the first and second defendants and whatever remains to the third defendant.

28 The evidence in relation to the background to, and creation and intent of, this trust was given only by the plaintiff and Mr Milenkovic. Mr Milenkovic's account is the more detailed. His account[5] is that the property was originally one of a number of investment properties owned by his parents. His parents were unable to keep up the mortgage payments and so he and his wife, the plaintiff, made payments towards two properties, a property at St Albans for a number of years until 1985 or 1986, and thereafter Stanley St. He says in his affidavit that his parents said that in return they would transfer the Stanley St property to him, and executed a written declaration of trust in his favour in about 1988 or 1989. That declaration of trust is not in evidence, and nor did Mr Milenkovic's parents give evidence. Mr Milenkovic says that he obtained the transfer of the registered title to him from his parents in 1999 because he needed security to offer for a loan to purchase a truck when he went into business for himself as a builder.[6]

29 Both Mr Milenkovic and the plaintiff say that they each contributed to the mortgage repayments on behalf of his parents. This was put forward as the justification for the plaintiff having a half interest in the property. They have no records to show what was contributed, nor that they each contributed. The reason Mr Milenkovic advanced in his affidavit as to why, if they both contributed, the property was not transferred to them both was that his parents had 'old fashioned views about husbands and wives'.[7] He also gave this account in cross examination, adding that 'I was their son and they were seeking to protect me. We were newly married.'[8] The plaintiff and Mr Milenkovic were tested on their assertions that they had each made contributions in cross examination, but adhered to their evidence on affidavit.

30 Mr Milenkovic and the plaintiff also gave consistent accounts as to how the Acknowledgment of Trust came to be drawn and executed. They say that it was drawn up by a solicitor, Mr David Chapman, who at that time practised at Bentleigh in a firm. He drew the document on instructions from Mr Milenkovic, and they both attended and signed it in front of him on the date it bears, 2 June 1999. He witnessed their signatures.

31 The document is headed 'Acknowledgement of Trust' and the recitals acknowledge an existing trust in the property in favour of the plaintiff as to a one half interest as tenant in common, not as a joint tenant. The operative part of the Acknowledgement then provides for the survivor of each of them to take a life interest in the other's half share, on that other's death.

32 The plaintiff did not call any corroborative evidence in relation to the trust. She did not call her husband's parents, or give any explanation why not, and did not call either Mr Chapman or Mr Lewenberg, the solicitor she consulted when she lodged her caveat on 19 January 2011. There was at one point an application by the plaintiff to adduce a statutory declaration said to be have been made by Mr Chapman, corroborating her account. That application was made on the basis that Mr Chapman was unavailable to give evidence. That application was withdrawn, and the affidavit of Mr Pryles, her solicitor, which set out the matters said to show the unavailability of Mr Chapman was not relied on.[9] The defendants accept, however, that Mr Chapman was overseas at the time of the trial, and so unavailable.[10] They do not seek that any adverse inference be drawn from his absence or the absence of Mr Lewenberg. The defendants do submit that there is no explanation afforded for the absence of Mr Milenkovic's parents, who were clearly relevant witnesses.

33 At the conclusion of the plaintiff's cross examination, I drew to her attention that prior to the transfer of Stanley St to her husband, it was owned jointly by his parents.[11] On its face, this might seem inconsistent with her husband's assertion that the reason that Stanley St was not transferred to them both was because of his parents' 'old fashioned views'. However, this possible inconsistency was not put to the plaintiff in the further cross examination following my questions, and so she did not have the opportunity to comment on it. It was put to Mr Milenkovic[12] in cross examination, and he adhered to his evidence. I will return to the explanation for transfer to him alone shortly.

34 While, as will be discussed in detail shortly, I have found that some of the evidence of the plaintiff and Mr Milenkovic is not reliable, I do accept their evidence that they each made financial contributions to the repayment of the mortgages on an investment property owned by Mr Milenkovic's parents at St Albans, and later the mortgage on Stanley St, in return for which Mr Milenkovic's parents transferred Stanley St to him. I do so for the following reasons.

35 First, it does not appear to be seriously contested that Mr Milenkovic made financial contributions towards his parents' mortgages. The thrust of the defendants' attack on the evidence about contributions was to suggest that the plaintiff had made no contribution.[13] Further, financial contribution by Mr Milenkovic is entirely consistent with transfer of the property to him by his parents.

36 Next, the plaintiff's evidence is that she has worked either full time or part time throughout their marriage, other than for short periods (from one to four months) when their children were born.[14] That evidence is not disputed. Mr Milenkovic's evidence is that they were married in January 1980[15], and have three children, who on his evidence would have been born in approximately 1982 (the oldest son, aged 32 in March 2014); 1987 (a daughter, turning 28 in 2014); and 1989 (another son, turning 26 in 2014).[16] This evidence was not disputed. It follows that the plaintiff was earning her own income and so able to contribute to household expenses and joint purposes from 1980, apart from short periods.

37 Mr Milenkovic says that they started paying the whole of the mortgage on the St Albans property for a number of years from the 'early 1980's' until 1985 or 1986, and then made contributions towards the mortgage payments on Stanley St.[17] The mortgage on Stanley St while it was owned by Mr Milenkovic's parents was discharged on 4 April 1995.[18] I infer that contributions were being made to the Stanley St mortgage from 1985 or 1986 to 1995, being a period during which, on the undisputed evidence of the plaintiff, she had only two short periods not employed, when the two younger children were born. Indeed, for the whole of the period during which payments were being made towards the mortgages on the two investment properties, the plaintiff and Mr Milenkovic were married, and each was working, with the exception of three short periods.

38 In addition to the financial capacity, through employment, to make contributions, I consider that the evidence shows that the plaintiff had the desire and drive to do so. The plaintiff commenced work as a hairdresser, but then studied accountancy part time, in addition to her family responsibilities and remaining part time work obligations. She obtained her accountancy qualification in 2000. I perceived her from the witness box as focused and determined, and a fairly forceful personality. Her study of accountancy and current employment as a financial manager, and readiness to draw up the Loan Agreement personally show an interest in financial matters. By contrast, Mr Milenkovic conceded that he was not good with paperwork, such as loan applications,[19] and 'not a financial person'.[20] He signed financial documents without reading them,[21] or barely reading them.[22] He too studied to advance himself, beginning work as a train driver, and later qualifying as a builder, but said his interest lay in building, rather than making money.[23]

39 The defendants contend that the evidence that the plaintiff as well as Mr Milenkovic contributed to the mortgages should not be accepted because neither kept any records of their contributions, and neither can recall exactly what those contributions were. I do not consider this to undermine their evidence. The time period concerned was many years ago, the plaintiff and her husband were young (she was 18 in 1980)[24] and the plaintiff in particular gave a frank and convincing explanation for why she kept no records as follows:

That was quite a while ago, and when you help your family out, you know, I wasn't that particular whether they paid me back or not because I knew that they would in some way pay me back.[25]

40 Mr Milenkovic also gave a convincing answer in cross examination to the effect that the plaintiff's interest in Stanley St was not properly described as to one half in these words:

We paid that together, we were both kids. We were both on fairly low incomes and the little income we had, we spent our-our money on it.[26]

41 The defendants also contend that the evidence that the plaintiff contributed financially should not be accepted because the explanation given by Mr Milenkovic for the transfer to him alone, being that his parents 'have old-fashioned views about husbands and wives'[27] was inconsistent with the fact that his parents owned Stanley St jointly prior to the transfer to him. There is certainly a possible inconsistency, but I consider that the second part of Mr Milenkovic's explanation for the transfer to him solely, given in cross examination, is entirely plausible, at least in relation to the early years of the repayments. When asked about the statement in his affidavit to the effect that his parents had old fashioned views about husbands and wives he said:

That's correct. They're old fashioned. I was their son and they were seeking to protect me. We were newly married.[28]

42 The plaintiff and Mr Milenkovic were married in 1980, and so not newly married when Stanley St was transferred in 1999, but they were comparatively newly married when they first started making contributions to the mortgages in the early 1980s, and when the Milenkovic parents signed a declaration of trust in favour of Mr Milenkovic in 1988 or 1989. The transfer of the title to him solely ten years later is consistent with a declaration of trust to him alone. Counsel for the plaintiff submits that the reference to the parents being 'old-fashioned' is as equally capable of explaining transfer to a child, and not to the child and his or her spouse, as it is capable of preferring that property be held by the man only, and I accept that submission.

43 For these reasons, I consider that the plaintiff has shown a basis for her and her husband to consider that she had an equitable interest in Stanley St, arising from her direct financial contributions to it, and possibly also indirect contributions arising from the marriage. This analysis supports their evidence that this was their subjective intention. I now turn to the Acknowledgement of Trust which in terms records such an intention.

44 The defendants contend that the evidence of the plaintiff and Mr Milenkovic as to the execution of the Acknowledgment should not be accepted. They contend that their evidence was vague, unconvincing and lacking in detail. The defendants rely on enquiries that suggest that there was no file record kept at the firm where Mr Chapman then worked of attendance by the Milenkovics. They also rely on the fact that the caveat that the plaintiff lodged after seeking legal advice in January 2011 does not refer to the Acknowledgement or the Loan Agreement and Charge. It relies only on a constructive trust.

45 There are certainly some unusual features about the creation and execution of this document, even on the plaintiff's case. The plaintiff is unable to produce the original[29]; it seems that the solicitor whom they consulted has been convicted of some offences[30]; on the plaintiff's case neither she nor her husband had or has dealt with him before or since as a solicitor, other than to contact him in 2012 to obtain confirmation of the Acknowledgement;[31] no file record of their attendance on him can be located at his former firm; no caveat was lodged at the time to give notice of the trust; and the Acknowledgement of Trust was not referred to in the caveat that the plaintiff did lodge in 2011.

46 Further, Mr Belleli gave evidence that he had acted for Mr Milenkovic and the plaintiff as a solicitor since the late 1980s on various matters.[32] The plaintiff confirms that this was so, although she said that he had acted for them on one or two conveyances only.[33] There is no explanation given by Mr Milenkovic as to why he did not consult Mr Belleli, rather than a solicitor he saw on one occasion only, in relation to acknowledging his wife's interest in Stanley St. This was, after all, a dealing with land, and so not dissimilar in kind to the matters on which Mr Belleli had previously acted for them. However, this question was not put to him in cross examination, and so no inference can be drawn from this omission.

47 It was put to both the plaintiff and Mr Milenkovic in cross examination that there was in fact no Acknowledgement of Trust.[34] In their oral closing submissions, the defendants clarified that they do not dispute that there is, or was, an original executed Acknowledgement of Trust, but do dispute that it was executed on the date the copy bears. This particular contention was not put squarely to the plaintiff or to Mr Milenkovic, nor was any suggestion as to when in fact it was executed, if not on the date it bears, put to them.[35] In my view, if the defendants' case is that the document was executed on some later date, then that suggestion had to be squarely put to each of the plaintiff and Mr Milenkovic to give them an opportunity to respond to it. In the absence of that suggestion being put to them, I accept the plaintiff's submission that the Court should be slow to reject evidence which is otherwise uncontested.

48 The defendants did not seek to impugn the standing of Mr Chapman as a solicitor in 1999, and accepted that he was unavailable to give evidence. The plaintiff and Mr Milenkovic say that they attended Mr Chapman's office at Bentleigh to sign the Acknowledgement. The current principal of Mr Chapmans' former firm, Kelly & Chapman, Mr Misko Vujnovic, swore an affidavit to the effect that he could find no record of the plaintiff or Mr Milenkovic as clients of the firm from June 1998 to the end of 1999, and that there is no record of the Acknowledgment at the firm.[36] His evidence does raise suspicion in relation to the evidence of the plaintiff and Mr Milenkovic. Mr Vujnovic was not available for cross examination, however, as he was ill in hospital, and so the weight that can be given to this affidavit is limited. It is not impossible, as the plaintiff submits, that the file, if one was created, was created in the name of Mr Milenkovic's company, or that there is some other explanation for Mr Vujnovic's inability to locate a record of an attendance that in fact took place.

49 The creation and execution of this Acknowledgement of Trust, as the plaintiff and Mr Milenkovic describe it, is also consistent with the execution of a declaration of trust in his favour by his parents in respect of Stanley St, prior to its transfer to him. He was not cross examined on his evidence that there was such a declaration, and so I accept it. That declaration was plainly not registered on the title of Stanley St, and so that past experience is consistent with the absence of immediate registration of a caveat disclosing the Acknowledgment of Trust.

50 For these reasons, despite the unusual features about the creation and execution of the Acknowledgement of Trust that I have identified, I find that it was created as the plaintiff and Mr Milenkovic say in evidence, and was executed on the date it bears. I will return to the question of the priority of the plaintiff's half interest as tenant in common so created later in these reasons.

51 The defendants contend that, if the Acknowledgement of Trust was executed as claimed, which I have found, then it was a sham transaction and of no effect. They rely on Sharrment Pty Ltd and ors v Official Trustee in Bankruptcy[37] ('Sharrment'). In that case, the Official Trustee contended that the creation of a debt at the instance of a person who subsequently died and whose estate was in bankruptcy in favour of a family trust, utilising complicated transactions through related companies, was a sham. Lockhardt J, with whom Beaumont and Foster JJ substantially concurred, analysed the authorities. He held that on the basis of those authorities:

A "sham" is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false and deceptive.[38]

52 Lockhardt J then discussed particular elements of "sham" transactions. The aspect on which the defendants rely here, and have adopted in their amended defence, relates to purported disposal of property. Lockhardt J held that :

A purported disposal of property, and by analogy a purported creation of a debt, may be a sham where donor and donee (or lender and debtor) do not intend to give effect to the transaction, it being agreed between them that there will be no change in the legal and beneficial ownership of the property.[39]

53 In giving this example of a possible sham transaction, it is clear that Lockhardt J was not departing from the overriding test, that a 'sham' transaction is one which is intended to be a disguise, to purport to be something it is not. In other words, the test for a transaction to be a sham requires both a common intention among the participants, and a disjunction between the appearance and the reality of the transaction. This was the test that the trial judge applied, and the Full Court on appeal did not cavil with it, disagreeing only with its application to the facts.[40] Lockhardt J noted that the question that arises, if there is a contention that a transaction is a sham, is what is the real transaction, that the parties to the transaction sought to mask?[41]

54 In Sharrment, there was no commercial purpose to the transactions but the Full Court held that this was not necessarily an indicator that the transactions were a sham, because it was open to infer from the evidence that there was a 'family purpose', being in that case the intention of the deceased to benefit his family at his expense.[42] The Court also rejected the contention that an ulterior purpose, which in that case may have been to present a shield against creditors, is sufficient to characterise a transaction as a sham. Lockhardt J held that, absent the transactions being set aside under the relevant provisions of the Bankruptcy Act, they could be legally effective although intended to achieve an unacceptable purpose. [43]

55 It is plain from Sharrment, that the hurdle a claimant faces in claiming that a transaction is a sham is a high one. Here, the defendants rely on matters both before and after the execution of the Acknowledgement of Trust in support of their submission that the trust was a sham. I have already discussed their submissions in relation to the events before the execution of the Acknowledgement. They submit that the plaintiff has failed to prove that she in fact made any contribution to the repayment of the mortgages on the investment properties when they were owned by Mr Milenkovic's parents, which is to be inferred from the fact that Stanley St was transferred to him alone. As discussed earlier, I do not accept these submissions. I find that the plaintiff did make a financial contribution to the repayment of those mortgages, and so has shown a basis for the joint intention apparent on the face of the Acknowledgement of Trust.

56 It follows that the defendants must show that the plaintiff and Mr Milenkovic agreed, despite these contributions and their execution of the Acknowledgment of Trust, that Mr Milenkovic was to remain the sole legal and beneficial owner of Stanley St. In other words, that the real transaction was to effect no change to the legal and beneficial ownership of the property.

57 The plaintiff and Mr Milenkovic deny any such agreement. They expressly say it was their joint intention that the plaintiff had a half interest in Stanley St. It was put to them in cross examination that the trust was a sham, and they each denied it.

58 The strongest evidence in support of the defendants' contention arises from matters subsequent to the execution of the Acknowledgement of Trust, being the absence of any indication to the outside world prior to the lodgement of her caveat in January 2011 that the plaintiff held not only that half interest, but any interest, in Stanley St. The defendants also rely on the absence of reference to a trust in the subsequent Loan Agreement. It is said that these matters show that the true intention of the plaintiff and Mr Milenkovic was that there be no change to his legal or beneficial ownership. I will now consider the subsequent dealings with the property in detail.

59 The first matter in time on which the defendants rely is that neither the plaintiff nor Mr Milenkovic caused a caveat to be lodged at the time of the Acknowledgement of Trust to protect her interest. This is certainly a step that one might expect a legal adviser, in this instance Mr Chapman, to suggest. Neither the plaintiff nor Mr Milenkovic recall any discussion of a caveat.[44] I do not consider the absence of a caveat at the time to necessarily indicate that the interest was not genuine. It is noteworthy, for example, that even the first and second defendants, themselves lawyers, did not register a caveat to protect their interest under the BKA Charge until February 2008 after it had become evident that Mr Milenkovic may not pay their costs. In other words, the solicitors did not take that step until they apprehended that their interest may need to be invoked, which is precisely the explanation that the plaintiff gives for not lodging a caveat until 2011.

60 More telling in my view is that there is no clear evidence in the plaintiff's case that either she or Mr Milenkovic caused any potential lender on the security of Stanley St to be made aware of her claimed interests in the property, and, where contemporaneous documents are in evidence exists, they support the defendants' contention that her interests were not disclosed.

61 The first of these lenders was Liberty Funding Pty Ltd ('Liberty Funding') in 1999, from whom Mr Milenkovic borrowed in the order of $70,000 when he first went into business on his own account as a builder. The mortgage over Stanley St securing that loan was registered on 25 May 1999 i.e. approximately a week prior to the Acknowledgement of Trust, but the plaintiff said that her husband already recognised prior to the Acknowledgement of Trust that he held half the property for her, arising from her contributions. She agreed with the proposition put to her in cross examination that she was concerned that once her husband went into business on his own account, his assets may be at risk, but said that the purpose of the Acknowledgement of Trust was also to recognise her existing interest.[45]

62 Mr Milenkovic in his evidence agreed that there was a dual purpose to the Acknowledgement of Trust. He agreed with the proposition put to him in cross examination, which came from his own affidavit,[46] that there was a concern at the time he went into business in 1999 to protect the plaintiff's interest in Stanley St, but volunteered that there was also concern to protect his interest as well. [47]

63 It follows from their evidence, that both Mr Milenkovic and the plaintiff considered at the time he was negotiating with Liberty Funding that she already owned half of Stanley St. There is no evidence that either disclosed this to Liberty Funding. The plaintiff said it was a matter for her husband to answer[48] and all he could say is that he used a broker, and 'I would have told the broker all my- all the information at hand'. He then qualified the statement in these words- 'if I've told him at that time anything, I would have told him that half the property belongs to my wife'[49] (emphasis added). I do not consider that this vague and heavily qualified evidence proves that disclosure was made, and find that it was not.

64 Mr Milenkovic subsequently refinanced the loan by obtaining an increased loan or line of credit in the sum of $280,000 from the Commonwealth Bank of Australia ('CBA'). His evidence is that he again used a broker, and 'would have told everything to the broker'.[50] When pressed as to whether he made a point of telling the broker about his wife's half interest, he said 'I wouldn't have made the point about anything. I answered questions from the broker like I'm answering to you.'[51] The plaintiff's evidence as to whether or not her half interest was disclosed to the CBA, is that she believed her husband had told the bank on the basis of what he told her at the time. She did not, however, recall that she asked him to do so. She said she could not recall because she did not have a problem with her husband borrowing that money.[52] No documents relating to the CBA loan are in evidence. I am not persuaded on the basis of this general and qualified oral evidence that the plaintiff's claimed interests were disclosed.

65 The next dealing with Stanley St was the Loan Agreement and Charge, said to have been executed on 28 November 2005. I will discuss the execution and effect of the Loan Agreement in detail shortly. The defendants do not admit the execution of the Loan Agreement and contend that, if executed, it was not intended to create the relationship of lender and borrower. The defendants also rely on the formulation of the Loan Agreement, if executed, to dispute the trust. The Loan Agreement purports to secure the loan 'over the Borrower's (Milic's) interest in the property at: 29 Stanley St'. The defendants say the absence of reference to the plaintiff's claimed half interest in the property by way of trust suggests that there was no such trust.

66 In my view, if anything, the use of the phrase 'the Borrower's (Milic's) interest' in the property, rather than just a reference to the property itself might suggest that Mr Milenkovic had less than a full beneficial interest in the property, and so be entirely consistent with the claimed half interest held by the plaintiff. I do not, however, consider that any inference either way can properly be drawn, given that the Loan Agreement was not drawn by a solicitor.

67 The plaintiff admits that her husband executed a charge over Stanley St, the BKA Charge, on or about 21 June 2006. I will discuss that charge in detail shortly. For current purposes, I foreshadow my finding that neither Mr Milenkovic nor his wife disclosed her claimed interests to BKA prior to the execution of the BKA Charge.

68 In April 2007 the loan over Stanley St was refinanced again by a loan from Westpac in the sum of $330,000. By that stage, in addition to the trust as to a one half interest, on the plaintiff's case she was also a secured lender in respect of Mr Milenkovic's remaining half share in Stanley St. Despite the extent of these claimed interests, and the plaintiff's evidence that she believed her then claimed half interest was disclosed at the time of the earlier loan by the CBA, neither the plaintiff nor Mr Milenkovic can say if her interests were disclosed to Westpac. The plaintiff could not recall if she asked her husband to notify the bank, or if he told her that he had done so.[53] Mr Milenkovic's evidence is again that he applied through a broker, told the broker, and can't speak on behalf of the broker as to what he decided to put in.[54] This inability to recall such a significant matter would alone strongly suggest that no disclosure was made. The issue is put beyond doubt in my view by the contemporaneous documents in evidence relating to the loan. I find that neither the plaintiff's claimed half interest by way of trust or her claimed secured interest arising from the Loan Agreement and Charge was disclosed to Westpac.

69 Exhibit 5 is a copy of a loan application by Mr Milenkovic to Westpac dated 8 March 2007. As noted, Mr Milenkovic said that he applied for the loan through a broker, and not all of the handwriting on the application is his. He acknowledged, however, that he had signed the application and that the list of real estate assets is in his handwriting. That list includes not just Stanley St, but also the matrimonial home at 14 Cabinda Drive, Keysborough ('Cabinda Drive'). The address of Cabinda Drive is partly struck through, but the significance of this, if any, was not explored in the evidence. Each of the properties are given values, totalling $920,000. Nowhere in the application is the plaintiff's half interest in Stanley St disclosed, and the only loan disclosed is the then current CBA loan and mortgage. Mr Milenkovic acknowledged that the section relating to secured loans is in his handwriting.

70 In my view, these omissions and the inclusion of Cabinda Drive are very significant. Even if Mr Milenkovic applied through a broker, he acknowledges not just signing the application, but completing these relevant portions himself. He did not disclose his wife's half interest or the loan from her. I do not accept that it is significant, as counsel for the plaintiff suggests, that the form does not contain a space to identify properties held on trust. On his own evidence as to why the trust existed, Mr Milenkovic clearly understood the significance of it in relation to ownership. I consider that he would have appreciated that the instruction in the form 'List all assets individually or jointly owned' was not confined to bare legal title. If that is what he understood it to mean, he would not have listed Cabinda Drive, because the legal title in that property was transferred from him to his wife in 2004 for no consideration.

71 The amount Mr Milenkovic was seeking in this application was $348,500. The security he proposed was Stanley St, which he valued in the application form at $410,000. Plainly, if his wife owned half the beneficial interest in that property by virtue of a trust and had a secured interest over his remaining half interest, as they contend, the security offered would be less than the loan sought.

72 For reasons not explained, Mr Milenkovic made a further application to Westpac. Exhibit 4 is a later application to Westpac for finance, signed by Mr Milenkovic and dated 17 April 2007. The property assets listed are not separately identified, but the total value given is again $920,000, and so I infer that both Cabinda Drive and Stanley St are included. Again, the only secured loan disclosed is the then existing loan from the CBA.

73 The final relevant document in relation to the Westpac loan is the Memorandum of Common Provisions, which is exhibited to the affidavit by which the money was paid into court, in turn an exhibit to the first affidavit of the plaintiff. The Memorandum is of course incorporated in the mortgage. It contains an obligation in clause B 2 on Mr Milenkovic to inform Westpac in writing of any trust. I accept the submission of counsel for the plaintiff that this is a standard form document, unlikely to have been read prior to acceptance of the bank's offer. Nevertheless, it reinforces that Mr Milenkovic was under a legal obligation to disclose any trust. I find on the basis of Exhibits 4 and 5, that he did not do so.

74 Having regard to the whole of the evidence in relation to disclosure of the trust to these lenders, I find that that neither the plaintiff nor Mr Milenkovic did disclose it (in the case of Mr Milenkovic) or ensure that it was disclosed (in the case of the plaintiff). I find that nor did they disclose to Westpac her claimed loan to her husband and her claimed interest as chargee after 2005.

75 The plaintiff and her husband contend that there was one further potential lender, Ares Global Trading Pty Ltd ('Ares Global'). Ares Global lodged a caveat on the title to Stanley St on 21 February 2008, claiming an interest as chargee dating from 11 October 2007. The date of lodgement of the caveat is significant. The VCAT proceedings concluded in judgment handed down on 13 February 2008.[55] Shortly thereafter, Mr Milenkovic disputed any obligation to pay further legal costs to BKA. The Ares Global caveat was removed in March 2011, on the application of the third defendant, which had by that stage acquired Mr Milenkovic's interest in the property. It was put to the plaintiff and Mr Milenkovic that the caveat was lodged to defeat a claim by BKA on its charge, and that it was not supported by any genuine interest. They denied this, but did say that the transaction underlying the caveat had not proceeded.

76 I will discuss the Ares Global caveat in more detail in relation to the Loan Agreement and Charge, because the plaintiff and her husband say that he had sought a loan in an endeavour to repay her the money she had supplied him.

77 The defendants submit that the failure of the plaintiff and her husband to ensure that her interests were disclosed to lenders shows that their true intention was not to create the interests by way of the Acknowledgement of Trust and Loan Agreement and Charge on which she now relies. The non-disclosure is a very significant consideration in the evaluation of their true intention. For the reasons that I now elaborate, however, I have concluded that in respect of the plaintiff's claimed interest by way of trust, it does not outweigh the evidence that supports that interest. I reach a different conclusion in relation to the claimed interest by way of loan. In summary, I reach this conclusion in relation to the claimed interest by way of trust because the evidence shows that the plaintiff and her husband treated their real property as mutually owned, irrespective of legal title. I also consider that there is a likely motive for the non-disclosure which is consistent with the existence of the trust, that motive being to preserve the attractiveness of Stanley St as sufficient security for business loans, while the parties anticipated no real threat to it. I now elaborate these matters.

78 In relation to the way the plaintiff and her husband treated their real estate, the inclusion of both properties in the loan applications to Westpac shows that Mr Milenkovic considered that he had a financial interest in each, and either the express or tacit approval of his wife to put both forward in support of his application for a loan to be secured over Stanley St. Cabinda Drive was legally owned at that time by the plaintiff, and only Stanley St by Mr Milenkovic.

79 The third property in which both the plaintiff and her husband held an interest of some sort was a property at Warburton, owned by a family trust. On the plaintiff's evidence, she, her husband and their children are the beneficiaries of that trust. Mr Milenkovic did not include this property in his list of assets when seeking his loan from Westpac, but he did claim a financial interest in it, as well as in Stanley St and Cabinda Drive, in the proceedings in VCAT in 2006 in which the first and second defendants acted for him and for which they sought the BKA Charge.

80 The intent of Mr Milenkovic's evidence in those proceedings, and that of the plaintiff, was to assert that as at 2004 he had the financial capacity to complete the contract the subject of the proceeding. In his Supplementary Statement of Evidence dated 16 October 2006, he asserted that as that date and in 2004, he held a financial interest in the three properties, Stanley St, Cabinda Drive and Warburton. He attached title searches which showed that he was the registered proprietor of Stanley St only.[56] He gave this evidence in re-examination at VCAT[57], and his counsel relied on it in his reply submissions.[58]

81 The plaintiff also gave evidence about her husband's assets. In cross examination she was asked 'Do you know what properties he owned?' to which she answered that 'He had our family trust property... He has a property in Brunswick and our home'. In answer to the question whether the family home was in her name, his name or joint names, she answered 'I think it was in my name'.[59] In this trial, when asked why she did not disclose the trust to VCAT, the plaintiff said that she was not asked directly how much of an interest her husband had in 'this property or that property', noting that she said he had an interest in Cabinda Drive, although it was in her name.[60] I consider that the plaintiff's evidence at VCAT shows that she agreed with the approach taken by Mr Milenkovic in relation to non-disclosure of the trust to the outside world.

82 It was put to the plaintiff and Mr Milenkovic in cross examination in this trial that finance secured over Stanley St only would have been harder to obtain had the plaintiff's interests in that property been disclosed. That is plainly so. The suggestion was put to them in connection with the defendants' case that there was in fact no such interest. It also supplies, however, in my view a probable motive for the non-disclosure, if the interests did in fact exist. For his business Mr Milenkovic needed credit and working capital. An institutional lender would ordinarily require security over real estate for any substantial loan. The necessity for security to offer a lender was the explicit reason for the transfer of the legal title to Stanley St to Mr Milenkovic from his parents in 1999, given that he already owned the beneficial interest in the property by way of their declaration of trust.

83 The other potential security property (leaving aside the trust property) was the matrimonial home at 14 Cabinda Drive. 14 Cabinda Drive was originally purchased as vacant land together with the adjacent lot in Mr Milenkovic's name only. He built houses on both lots, and sold 16 Cabinda Drive, on the plaintiff's evidence during the 1990s. The matrimonial home at 14 Cabinda Drive was transferred to the plaintiff for no consideration in October 2004. The plaintiff said that although she paid no money for the transfer, it came about because her husband had already used the property next door 'for his own purposes'.[61] This was, on her evidence, some years before, so the timing of the transfer to her may suggest that it was with a view to keeping the matrimonial home away from creditors. The transfer was in 2004, and in 2004 Mr Milenkovic set up a joint venture company in addition to his own business.[62]

84 As a result of this transfer, after 2004 between them Mr Milenkovic and the plaintiff had two properties in their personal names, one registered in the name of each. They also had an indirect financial interest in the family trust property. The only occasion on which that interest was disclosed, on the evidence, was to bolster Mr Milenkovic's claim that he would have been in a position to proceed with the contract the subject of the VCAT proceeding. Relying on it in this way did not, of course, expose it to any risk.

85 I conclude that non-disclosure of the plaintiff's claimed interests in Stanley St to the outside world was entirely consistent with a joint intention to facilitate Mr Milenkovic's business, while protecting their matrimonial home and family trust property in the event the business did not prosper.

86 In my view, the explanations given by the plaintiff when asked in cross examination why she did not cause a caveat to be lodged at the time of execution of the Acknowledgement of Trust or ensure that her interest in Stanley St was disclosed to Westpac support my conclusion that this was their probable motive for the non-disclosure. The plaintiff said she was not aware that she needed to lodge a caveat to protect her interest in relation to 'the trust document' because 'I didn't feel that there was any threat at that stage (by implication, on execution of the Acknowledgement of Trust) for me to lodge the caveat'. She expanded her answer in these words: 'At that stage I didn't really understand that I could lodge a caveat, but if I thought that my property was threatened I would have had legal advice and see what I can do about it. I thought I was protected by the mere fact that I had the document'.[63]

87 She gave a similar answer in relation to questions as to whether she asked her husband if he had disclosed her interests in Stanley St (by then in relation to both the trust and the loan agreement) to Westpac. She answered: 'No, I didn't have a problem with him borrowing that money'.[64] In other words, she considered it safe not to disclose her claimed interests while the property was not at risk from any external source. She only took steps to disclose her interest (and only one such interest) once she became aware that the property was at risk.

88 Having regard to the whole of the evidence discussed above, I find that the plaintiff and her husband did not disclose any claimed interest by the plaintiff in Stanley St to the outside world, until the plaintiff lodged her caveat in January 2011. At that time, the Sheriff's auction was imminent and so there was clearly a real risk to the plaintiff's interests. I find that their probable motive was to facilitate obtaining business loans secured over Stanley St only, and so keeping their other assets secure. This might suggest an ulterior purpose for the execution of the Acknowledgement, being as in Sharrment, to 'present a shield against creditors', to be concealed when it would not facilitate the business, but to be used when necessary. Even if that were a motive, however, that does not, as Sharrment makes clear, defeat the creation of the trust, if the evidence shows an intention to create it.

89 In my view, the evidence here does show such an intention. I accept the evidence of the plaintiff and Mr Milenkovic that it was their intention at the time of their contributions to the repayment of the mortgage on Stanley St prior to its transfer and at the time of its transfer to Mr Milenkovic alone that the plaintiff hold a half interest in Stanley St, based on the objective foundation of the plaintiff's financial contributions. Further, as also exposed by Sharrment, the lack of a commercial purpose does not render a transaction a sham, if there is a family purpose that can be inferred. Here the family purpose that can be inferred is to protect the couple's assets to the extent possible, while allowing the business to operate.

90 Two further occasions on which the plaintiff had the direct opportunity to disclose her equitable interest or interests in Stanley St arose on the evidence. On both of these occasions the property, and any interest she had in it, was clearly at risk. The first was when she learnt of the impending Sheriff auction in January 2011 and consulted a solicitor, Mr Lewenberg, and the second when Westpac indicated that it intended to exercise its powers as a mortgagee on default in July of that year.

91 The plaintiff did take action to declare an interest in Stanley St in relation to the Sheriff's auction. Following obtaining advice from Mr Lewenberg, she personally completed and lodged a caveat over Stanley St. The caveat does not, however, refer to either the Acknowledgement of Trust or to the Loan Agreement and Charge. It claims an equitable interest pursuant to a constructive trust.

92 The plaintiff's explanation in cross examination for this omission is that she told Mr Lewenberg of these documents, but as she had not been able to locate them in the little time she had to act after learning of the imminent auction, he advised her to lodge the caveat in the form she did.[65]

93 The plaintiff's evidence as to what she was told by Mr Lewenberg is not corroborated by any other evidence. In my view, her explanation for the form of the caveat is possible, but not very plausible. First, the trust is described as a 'constructive trust', not an express trust. A lawyer told that there was a document acknowledging the trust would be expected to appreciate the difference. Secondly, the caveat refers only to a trust, it does not refer to the further interest that on the plaintiff's case had been created by that time, being the charge under the Loan Agreement. The absence of the documents in the conference with Mr Lewenberg meant that he could not satisfy himself of their contents, and so arguably could not, consistently with his ethical obligations, lodge a caveat in reliance on them as a solicitor. He did not lodge the caveat, however, the plaintiff did herself. If, as she claims, she was personally familiar with the contents of the documents, and believed that they created legally enforceable interests in the property, imminent possible sale of the property would seem to be the occasion to disclose them.

94 As I have found for other reasons that a trust existed, on balance I do not consider the failure to disclose the Acknowledgement of Trust at this time to be fatal to that interest. It is, however, in my view, a significant omission in relation to the Loan Agreement, and so the Charge. I will return to that shortly.

95 The other occasion on which the plaintiff herself was in a position to directly disclose her claimed interests in Stanley St to a creditor who posed a threat to the property was in relation to Westpac when it exercised its power of sale. The exact reasons for Westpac to take this step then are not in evidence. It appears, however, that at some point prior to 27 June 2011 there was a default, or further default (given that BKA was notified of a default in 2009) and perhaps some negotiation directly with Mr Milenkovic about repayment of arrears.[66] Mr Milenkovic was going overseas, and for that reason gave the plaintiff his power of attorney. He signed an application to the Financial Ombudsman Service ('FOS') on 19 July 2011, which the plaintiff completed.[67] That was a direct opportunity for the plaintiff to disclose her claimed interests in the property. She did not do so in that application. She had by that time lodged a caveat on the title claiming an interest by way of constructive trust, but the only loan noted in the application as either secured over Stanley St (as she claims hers was) or unsecured is the loan to Westpac. At that time, on the plaintiff's calculations pursuant to the loan agreement, her husband owed her $253,471[68].

96 The plaintiff did not in the completed application to FOS include the interest held by Mr Milenkovic in Cabinda Drive that she had agreed at VCAT existed. Westpac would, however, have been aware from the earlier applications of his claimed interest in Cabinda Drive as well as Stanley St.

97 Further correspondence directly between the plaintiff and Westpac ensued. It appears that the plaintiff had written directly to Westpac on 25 July 2011. That letter is not in evidence. The response from Westpac dated 29 July 2011 is in evidence.[69] It makes no reference to any claimed interest held by the plaintiff. Nor does her reply dated 3 August 2011.[70] That reply speaks in strong terms of the bank's duty to Mr Milenkovic, but makes no mention of any claimed interest by the plaintiff herself in the property.

98 The plaintiff said she could not recall why she did not mention the loan in the application to the FOS. [71] She said she assumed that the trust was not mentioned because Stanley St was in her husband's name.[72] Similarly, she said she could not recall why she did not refer to her claimed interests in her letter of 3 August 2011 to Westpac. I do not accept these explanations. I consider them evasive, and disingenuous. At this stage the plaintiff had been a qualified accountant for over 10 years, having qualified in 2000.[73] She had been working as a finance manager since 2008.[74] The content of her reply letter to Westpac shows an ability to advocate. She impressed me from the witness box as a forceful personality. She gave detailed evidence on matters that favoured her case, even when they occurred many years before. I find that the absence of reference by her to the loan or the trust in this correspondence to Westpac was deliberate.

99 There is a possible explanation for the omission that is consistent with her claims in respect of those interests. That is that disclosure of those interests to Westpac when mortgagee sale was threatened would not have advanced her request that the bank allow time to Mr Milenkovic to repay the arrears. This explanation was not put to the plaintiff, and so I make no finding that this was her motive for concealment. I merely note that there is a possible alternative inference for concealment, which is consistent with the transactions in question not being shams. Pursuant to Sharrment, that may be sufficient to discount that characterisation.[75]

100 I have given careful thought to whether these two occasions, on which the plaintiff did not disclose the interests she now claims in Stanley St notwithstanding that those interests were clearly then at threat, should cause me to reconsider the conclusion I would otherwise have reached in relation to the existence of the trust. I will return to the relevance of these matters in relation to the loan in due course.

101 On balance, I consider that the inference that is open from these omissions, that the trust was a sham, is outweighed by the other evidence that I have accepted. I accept the evidence that there was a foundation for the trust by reason of the plaintiff's contributions to the earlier repayment of the mortgage when the property was owned by Mr Milenkovic's parents. I have also found that despite the unusual aspects of the creation of the Acknowledgement of Trust, the evidence of the plaintiff and Mr Milenkovic that it was created and executed on the date it bears should be accepted. That document explicitly states a joint intention that Mr Milenkovic hold one half of Stanley St on trust for the plaintiff. Their evidence is that this was also their subjective intention. I do not consider that non-disclosure to the outside world casts such doubt in relation to this stated intention that I should not accept their evidence of it. There is a plausible explanation for that non-disclosure in the desire to obtain credit while protecting their assets, while the business was ongoing. Once the property was at threat, the plaintiff did take steps to alert a possible purchaser to her interest by way of a trust. For these reasons, I do not accept the submission of the defendants that the trust was a sham.

102 I will consider non-disclosure of the trust further in relation to the question of priority in respect of competing interests later in time.

103 The evidence of the plaintiff and Mr Milenkovic is that they signed the document headed 'Loan Agreement' a copy of which is exhibited to the plaintiff's first affidavit[76] and did so on the date it bears, 28 November 2005, before a witness Sandra Stankovska. Their evidence is supported by Ms Stankovska, who gave clear and convincing evidence to the same effect. The defendants do not admit that the document was executed as claimed, but make no submission that Ms Stankovska should not be believed. I find that the Loan Agreement was executed by the plaintiff and Mr Milenkovic on the day and in the form claimed.

104 The Loan Agreement defines the plaintiff as 'the Lender' and her husband Milic Milenkovic as 'The Borrower'. It purports to record that the plaintiff will lend her husband 'up to $150,000' 'in instalments as and when requested'. It specifies that interest is payable at 8.75%, payable monthly and to be capitalised if not paid when due. It provides in relation to a heading 'Security' as follows:

(i) Inter alia a charge and equitable mortgage over the Borrower's (Milic's) interest in the property at: 29 Stanley Street Brunswick: "Certificate of Title Volume 4300 Folio 813"

105 The Loan Agreement also specifies certain other conditions and that variations need to be agreed in writing. It does not, however, contain any date for repayment of principal and capitalised interest, nor any express obligation to repay.

106 The plaintiff says that she created this document herself, after doing some research on the internet.[77] She says that her husband asked her for a loan to assist in repayment of expenses associated with the VCAT proceeding and working capital and that she wished to formalise the arrangement because, in her words, 'I had previously lent him money which wasn't- we didn't have any agreement and I said I wouldn't lend him any more money without having some sort of security for myself'.[78]

107 The plaintiff deposes in her second affidavit[79] to the steps she took following execution of the Loan Agreement. She obtained further funds from the CBA secured by the mortgage over Cabinda Drive, which was in her name, and provided certain amounts to her husband. Those amounts consisted of two large payments of $82,000, made on 13 February 2006, and $72,000 made on 13 February 2007, together with some smaller sums. The last amount provided was on 31 January 2008. The plaintiff exhibits to her second affidavit various bank records to prove the extension to the mortgage and those payments. She was not cross examined on these matters. I find that the amounts were transferred as she deposes, from accounts in her name to an account in the name of Unique Investments (Vic) Pty Ltd, which was the company used by Mr Milenkovic for his business, or directly to counsel and witnesses engaged in the VCAT proceeding.

108 The plaintiff deposed in her first affidavit that she has not been repaid any part of those sums. It was not suggested to her in cross examination that she had, and so I accept her evidence in chief that she has not. She exhibits to that affidavit[80] a calculation of the amount owing to her by her husband under the Loan Agreement, which was, according to that calculation, as at 1 September 2012, in the sum of $280,754.28. The fact that this document runs to 1 September 2012 suggests that it was created, or at least completed, on or after that date. There is no evidence, either in chief or in cross examination, as to when it was created, or for what purpose.

109 When asked in cross examination if she had 'at any stage' asked her husband to repay the advances, or any of it, she replied:' Well he wasn't in a position to repay it'.[81] When the question was put again a short time later, she qualified her answer in this way: 'I don't recall making a demand but I did expect him to repay me'. The clear implication of her first answer is that she has not asked for repayment at any time, and I so find. Mr Milenkovic agrees that the plaintiff has never made any demand for payment.[82]

110 The defendants submit that the Loan Agreement was not intended to 'create a relationship between the plaintiff and Milic Milenkovic of lender and borrower respectively'.[83] In cross examination it was put to the plaintiff and Mr Milenkovic that the Loan Agreement was a sham, which they both denied. In submissions, the defendants relied in support of this contention on the same matters as discussed earlier in relation to the trust, together with the following additional matters:

• the Loan Agreement does not contain any obligation to repay

• no caveat was lodged in respect of the charge purportedly created by the Loan Agreement

• the absence of evidence that the purported loans were used in connection with Mr Milenkovic's business

• the implausibility of Mr Milenkovic's explanation for the Ares Global caveat as reflecting an attempt to repay the plaintiff.

111 In the earlier section of this judgment, I discussed in detail the non-disclosure by the plaintiff and Mr Milenkovic of the trust to potential lenders. I will shortly discuss whether their evidence that they disclosed both the trust and the Loan Agreement to BKA prior to the BKA Charge should be accepted. I conclude that it should not. It follows that there is no evidence that either the plaintiff or Mr Milenkovic disclosed the trust or the Loan Agreement to anyone other than the witnesses to the respective documents, (the Acknowledgement of Trust and the Loan Agreement), and in particular did not disclose either interest to anyone with a competing claim in respect of the property until the plaintiff lodged her caveat in January 2011. In respect of the plaintiff's claimed half interest by way of trust, I concluded that although this non-disclosure raises suspicion as to whether or not such an interest genuinely existed, on balance I conclude that it did. I reach a different conclusion in relation to the interest claimed by way of charge pursuant to the Loan Agreement. I do so for the following reasons.

112 First, while I accept the evidence of the plaintiff in response to the suggestion that the Loan Agreement was a sham, that she did not want to provide further funds without some 'formal agreement',[84] the Loan Agreement was not created or treated by the plaintiff and her husband with the same degree of formality as the Acknowledgement of Trust. Mr Milenkovic says that he did not read the Loan Agreement before signing it.[85] The plaintiff did not consult a solicitor, as did Mr Milenkovic when arranging for a document to acknowledge his wife's half interest. I consider this to be a significant difference, particularly as on the plaintiff's evidence she had lent her husband money before and now wanted 'security'. If by that term she meant a legally enforceable interest in property, the best way to secure that protection would have been to have a solicitor draw up the document.

113 The reasons for not consulting a solicitor were not fully explored in cross examination. One obvious query is why the plaintiff did not ask Mr Belleli to draw it up. The Loan Agreement was executed in November 2005. By this stage, the VCAT proceeding was underway, Mr Belleli was acting for Mr Milenkovic and his company and had filed a counterclaim on his or its behalf.[86] Mr Milenkovic needed the loans for purposes relating to the VCAT proceeding. The instructions to settle that counterclaim were given directly to BKA by the plaintiff in September 2005, as Mr Milenkovic was overseas.[87] The plaintiff did not consult Mr Belleli to draw up the Loan Agreement two months later. The plaintiff was not asked in cross examination why not, and so I draw no conclusion about that omission. The failure to consult any solicitor remains, however, a significant difference between the trust and the Loan Agreement.

114 Secondly, the parties to the Loan Agreement have not shown by their conduct that they regarded it as creating an obligation to repay and 'security' in the sense of a secured interest in Stanley St. The document is itself arguably defective, and legally unenforceable, in that it contains no obligation to repay. Further, the plaintiff made no demand for repayment at any time[88] and there is no evidence as to when or in what circumstances she created her calculation of the amount outstanding, or whether she ever informed her husband of the amount now outstanding prior to this proceeding. The implication from Mr Milenkovic's evidence is that she did not, at least at the time that he was increasing the indebtedness by way of first mortgage over Stanley St in March 2007, and I so find. [89] This time would have been an obvious occasion for at least a discussion about the amount outstanding to the plaintiff if the parties intended that amount to be enforceable by way of unregistered charge over Stanley St, because an increased amount by way of registered mortgage had the potential to defeat her claim entirely.

115 On the basis of the plaintiff's calculation of the amount outstanding, on which she now relies,[90] at the time Mr Milenkovic was seeking to borrow more than $300,000 from Westpac in March 2007, most of which was required to repay the existing loan of $280,000 to the CBA, he owed the plaintiff more than $170,000 which was secured over Stanley St, the very security he proposed and gave for the Westpac loan. He valued Stanley St at that time at $410,000.[91] Even if the plaintiff had no interest in Stanley St by way of trust, the security Mr Milenkovic was proposing to Westpac was inadequate if he had a legally enforceable obligation to repay his wife. The conduct of the plaintiff and Mr Milenkovic in failing to discuss the amount outstanding to her or disclose the loan at this time suggests that they did not consider that he had such an obligation.

116 It is not a sufficient answer to the plaintiff's failure to seek repayment to say that she knew her husband could not afford to repay her. Rather, the fact that she permitted increased security over the property to Westpac without ensuring disclosure of her claimed interests and continued to loan money to him notwithstanding what she knew of her husband's financial position suggests that it was not her intention to create a legally enforceable obligation to repay, as opposed to recording a moral or inter-family obligation.

117 The only evidence of any attempt by Mr Milenkovic to repay her is his claim that the caveat lodged by Ares Global in February 2008 (which claimed an interest from October 2007) reflected both his proposed involvement in a property development that did not proceed, and his approach to Ares Global for funds to repay his wife. The caveat purported to secure an interest in the sum of $350,000.[92] If this caveat had reflected a genuine and completed transaction, then the potential impact on the plaintiff's now claimed interests in Stanley St was very considerable. Mr Milenkovic says that he did not, in the event, borrow the funds and he did not become involved in the proposed development.[93]

118 The plaintiff's evidence suggests she was remarkably unconcerned about the Ares Global caveat, given the potential impact on her own interests. Her evidence in relation to the caveat is vague. She cannot recall when she first learnt of it with any precision, saying only that she first learnt of the Ares Global caveat sometime after she received notice of the impending Sheriff's auction, which was on 16 January 2011.[94] Nor can she recall that the loan it was said to reflect was in the sum of $350,000[95] i.e. more than her claimed half interest in Stanley St, the total value of which she gave as $600,000 in the 2011 application to the FOS.[96] The plaintiff said that she understood the Ares Global caveat to be related to an attempt to repay her, that her husband had told her that he was trying to borrow to pay her back; that her interest was not at risk because he would have paid down the debt; and in any event the loan didn't go through. [97]

119 I do not accept the evidence of the plaintiff and Mr Milenkovic as to the proposed transaction with Ares Global. The evidence of both is extremely vague. Neither produce any documentation to support the claim of an attempted or proposed borrowing. Mr Belleli sought documents to support the claimed interest between July 2010 and the Sheriff's auction in January 2011, from Mr David Chapman, solicitor, then acting for Gatto Corporation, who claimed to have taken over the charge. No documents were provided.[98] This is consistent with the caveat not supporting a claimable interest.

120 I accept the submission of the defendants that the plaintiff and Mr Milenkovic would be able to give a clearer account if the transaction had been genuine.[99] I also accept the defendants' submission that the proposed transaction is itself implausible. Why the same transaction would involve Mr Milenkovic as builder and as borrower for entirely unrelated purposes[100] is not explained, and is inherently implausible. The property was also substantially encumbered at this stage by the loan from Westpac. Even if seen as a proposed refinance of that loan (which was suggested by counsel for the plaintiff, but is not the way the plaintiff or Mr Milenkovic characterised the proposed transaction in evidence), a loan of $350,000 would implausible if the stated intention to repay not just Westpac but also the plaintiff a loan secured over the property was disclosed. I find that the plaintiff made no demand for repayment, and Mr Milenkovic made no attempt to repay her.

121 The plaintiff says that, although she cannot recall making any demand for repayment, it was her expectation that Mr Milenkovic would repay the money.[101] Mr Milenkovic says that he did not need to read the Loan Agreement before signing it because he trusted his wife, and because 'My wife, even if you're separate now, I- if I owe her anything, I will owe it for the rest of my life'[102] (emphasis added). It is not clear what Mr Milenkovic meant by the word 'if', but it could suggest some qualification as to whether he regarded the Loan Agreement as creating an enforceable obligation to repay. Certainly, his evidence as to intent to repay is more equivocal than that of his wife.

122 Even if Mr Milenkovic did not mean to cast doubt on his intent to repay, his evidence and that of the plaintiff as to their subjective intentions are equally consistent, in my view, with the Loan Agreement reflecting a moral obligation, or understanding between them, as with an obligation that was intended to be legally enforceable. I consider that the objective evidence shows that the true intent of the Loan Agreement was to reflect such an understanding between husband and wife, and not to create a legally enforceable loan or charge.

123 At the time the Loan Agreement was entered into, the plaintiff and Mr Milenkovic were living together. At the time of the trial in this proceeding, they were not. Their intention, however, must be judged as at the time the Loan Agreement was entered into. The evidence that I have discussed in relation to the trust shows that while living together the plaintiff and her husband treated their real property as mutually owned, irrespective of legal title. Cabinda Drive was initially legally owned solely by Mr Milenkovic and was transferred to the plaintiff for no financial consideration. Despite transfer of the legal title, Mr Milenkovic claimed interests in all three properties, Stanley St, Cabinda Drive and the family trust property in the VCAT proceeding, and the plaintiff supported him in that. She allowed him to borrow on the security of the property in his name, Stanley St notwithstanding her claimed interests, without ensuring disclosure of those interests.

124 Their evidence at VCAT was principally directed to the position as at 2004, which was prior to the Loan Agreement, but Mr Milenkovic in his witness statement claimed that he still had an interest in Stanley St as at 16 October 2006.[103] This claim is simply not consistent with the interests that the plaintiff claims, and Mr Milenkovic seeks to corroborate, in this trial. In October 2006 if, as Mr Milenkovic shortly thereafter estimated to Westpac, Stanley St was worth $410,000 and he owed the CBA $280,000 then, if his wife had no interest, his remaining equity was $130,000. If his wife had the equitable interest by virtue of trust that she now claims, his beneficial interest was at a maximum $65,000. On her calculations for this trial, at that time Mr Milenkovic also owed her nearly $90,000, secured over that beneficial interest. In other words, it was either not correct for Mr Milenkovic to claim that he still had in October 2006 an interest in Stanley St, or the parties did not regard the plaintiff has truly having both the interests she now claims.

125 The plaintiff's claim of an equitable interest in the property still registered in Mr Milenkovic's sole name, Stanley St, is entirely consistent with this sort of intermingling of assets as between spouses. The claim based on the Loan Agreement is not, and indeed stands directly opposed to it. In other words, the intermingling of assets that supports my conclusion that the plaintiff had an equitable interest by way of trust in Stanley St supports the opposite conclusion in relation to the Loan Agreement. I accept the plaintiff's evidence that she and her husband have always had separate accounts. However, I do not consider this to be inconsistent with the sort of intermingling of assets that I consider is shown on the evidence.

126 I have also taken into account that in Sharrment, it was not proved that a loan was a sham just because it was between related entities, had no commercial purpose and may have been for a family purpose. That was not, however, as here, a loan from one spouse to another, while living together, and otherwise treating their real estate as mutually owned. Given those facts, in my view clear evidence is required that the spouses intended to create as between them legally enforceable rights and obligations as lender and borrower respectively. Here the objective evidence that would support such a conclusion is limited to two facts. First, that a document was drawn up, with some formality in that a person was engaged to witness their signatures. Secondly, and, undeniably, the plaintiff borrowed monies to make the payments and secured those loans over Cabinda Drive, which was in her sole name. Thus she incurred liability to a third party, the CBA, for the payments she made to or for her husband.

127 I do not discount the force of these matters. The objective evidence tending towards the opposite conclusion, that the plaintiff and her husband did not intend the Loan Agreement to be legally enforceable, is, however, more compelling. In addition to the matters I have already discussed, the final and I consider very compelling fact, is that when the plaintiff did take steps to disclose her claimed interest by way of trust to the world at large by lodging a caveat, she did not include in that disclosure any disclosure of a charge. As discussed earlier, I do not accept her explanation for this omission. I consider that her failure to disclose the charge at this crucial time leads strongly to the conclusion that she did not regard the Loan Agreement as creating legally enforceable obligations.

128 I accept the submissions of the defendants that, in this sense, the Loan Agreement was a sham because the parties to it, the plaintiff and her husband, did not intend it to create legally enforceable obligations as lender and borrower, or chargee and charger, respectively. I find that at most they intended it to record only a private, family or moral obligation to repay, not a legally enforceable one. I conclude that the plaintiff did not have an equitable interest by way of charge arising from the Loan Agreement in Stanley St, and so has no corresponding interest in the funds in court.

129 The plaintiff does not dispute that her husband executed this charge on the date it bears, 21 June 2006, before David Rewell, the solicitor in the office of BKA with the major conduct of Mr Milenkovic's proceeding in VCAT. The charge provides as follows:

To: BELLELI KING & ASSOCIATES

Solicitors

First Floor

9011 Pultney Street

DANDENONG VIC 3175

IN CONSIDERATION OF BELLELI KING & ASSOCIATES at my request providing me with legal assistance in respect of CAT proceedings number D232/2005, I, the undersigned, of 14 Cabinda Drive, Keysborough, in the State of Victoria being the beneficial owner HEREBY CHARGE in favour of BELLELI KING & ASSOCIATES all my estate and interest legal and equitable in all the piece of land at 29 Stanley Street, Brunswick, being more particularly described in Certificate of Title Volume 4300 Folio 813 with payment of all legal costs, Counsel's fees and disbursements which BELLELI KING & ASSOCIATES has incurred or may incur on or behalf in connection with the said legal assistance or in connection with the filing and removal of a Caveat against the said land and hereby AUTHORISE BELLELI KING & ASSOCIATES to lodge a caveat over the land referred to herein in order to better secure the said charge and I FURTHER UNDERTAKE to execute, when called upon, such mortgage and other undertakings and instruments in respect of the said land as BELLELI KING & ASSOCIATES may require. upon payment of costs outstanding to BELLELI KING & ASSOCIATES, BELLELI KING & ASSOCIATES will on that date provide a discharge of this Charge.

Dated the 21st day of June 2006

___________________________

MILIC MILENKOVIC

In the presence of: Witness ___________________________

Print Name DAVID ARTHUR REWELL

Occupation 1st floor, 9 Pultney St.,

Dandenong, Vic. 3175

An Australian Legal Practitioner

Address within the meaning of

the Legal Profession Act 2004

___________________________

130 The parties are in dispute as to three issues. First, what interest in Stanley St was charged. The BKA Charge purports on its face to charge all Mr Milenkovic's estate and interest, both legal and equitable in Stanley St. The charge contains a warranty by Mr Milenkovic that he is the sole beneficial owner, as well as the legal owner. I have found that that was not the case, and that he held one half of the beneficial interest on trust for the plaintiff. Mr Milenkovic could charge only what he owned, without the consent of the plaintiff to also charge her interest. There is no evidence of any such consent, other than what might have been inferred had I accepted that the plaintiff was on notice of the charge by reason of the 21 July 2006 meeting or otherwise. Accordingly, I find that the BKA Charge extends only to that half of the beneficial interest that Mr Milenkovic retained. I will return to the question of postponement of the plaintiff's half interest in due course.

131 Secondly, the parties are in dispute as to the nature of the amounts secured by the charge. The plaintiff contends in her closing submissions that notwithstanding its terms, on the evidence the BKA Charge was intended to secure only disbursements, and not solicitors' fees. The defendants say that it secured the payment of all outstanding amounts, being principally their solicitors' fees together with some disbursements, but not counsel fees for Mr Forrest, counsel for Mr Milenkovic and his company in the VCAT trial, as Mr Milenkovic paid Mr Forrest directly.

132 Thirdly, if the BKA Charge did include solicitors' fees, there is a dispute between the parties as to the proper amount.

133 In addition to these matters, there are very significant factual disputes between the parties in relation to notice of each other's interests in Stanley St. The plaintiff contends that she told Mr Belleli about her claimed interest in Stanley St at a time which must, on her evidence, have been before the execution of the BKA Charge. That is denied. Mr Belleli contends that he referred to the BKA Charge in a meeting attended by the plaintiff shortly after its creation. That is in turn denied by the plaintiff.

134 These disputes relate to the priority of the plaintiff's interests, if found proved, as against the interest created by the BKA Charge. The plaintiff's account also tends to support her contention that the BKA Charge secured only disbursements, principally counsel fees. It is convenient to deal with those issues of notice first.

Notice of the plaintiff's interests to BKA, and the BKA Charge to the plaintiff

135 The competing accounts as to what was said relate to four time periods.

Meetings prior to execution of the BKA Charge

136 The first is mid June 2006, prior to the execution of the charge on 21 June 2006. The VCAT trial was due to commence on Monday 26 June 2006. Mr Belleli's evidence in his second affidavit is that he was concerned to obtain funds from Mr Milenkovic to put in trust on account of costs and disbursements to be incurred, and also to pay outstanding accounts. He said that by June 2006 Mr Milenkovic had paid amounts owing, but had only done so after 'repeated requests'. [104] It was put to him in cross examination that Mr Milenkovic had paid the three accounts rendered to that date in a relatively timely fashion.[105] I accept that the plaintiff has shown that to be the case. To that extent, I do not consider it shown that it was, as Mr Belleli had deposed, 'always a task' to obtain funds from Mr Milenkovic, if by that evidence Mr Belleli meant payment of outstanding accounts. I accept, however, Mr Belleli's evidence in cross examination that his usual practice was to run matters on the basis of money in trust, and he had asked Mr Milenkovic, the implication being unsuccessfully, for funds to place in trust. In particular he says that Mr Milenkovic had promised to provide him with $15,000 to be held in trust by 2 June 2006, and had not done so. As a result, Mr Belleli drafted a letter to him, referring to that promise, and the need for sufficient funds to be held in trust if BKA were to continue to act for him.

137 Mr Belleli exhibits that draft letter, which is dated 14 June 2006, to his affidavit. It supports his account. His assertion that no money had been paid to be deposited into trust is corroborated by the BKA ledger relating to the VCAT proceeding,[106] which shows that no monies had been provided by Mr Milenkovic to place in trust prior to 15 June 2006 when he provided $440 on account of counsel fees. I accept Mr Belleli's evidence on these matters. His evidence is relevant to the purpose and content of the BKA Charge.

138 Mr Belleli says that, before he sent the letter, Mr Milenkovic came in to see him on 16 June 2006. He discussed the contents of the letter with him. Mr Milenkovic said that he did not have the funds at that stage to pay what was being requested, and that he had an arrangement with the trial counsel to pay him directly. Mr Belleli's account is that he said he still required security for BKA's own fees, and would discuss with that counsel whether he would still hold BKA responsible for his fees notwithstanding the arrangement for direct payment by Mr Milenkovic. On Mr Belleli's account, Mr Milenkovic 'agreed that he would provide security by way of a charge over the Stanley St property which he told me he owned.'[107] Mr Belleli says that he asked Mr Milenkovic about the value of the property and whether it was encumbered. He says he cannot recall what Mr Milenkovic said in response, save that he was satisfied that there was sufficient equity to cover BKA costs. Mr Belleli says positively that Mr Milenkovic did not say anything about any interest in the property held by the plaintiff. In the plaintiff's case, by this stage her husband held half of the beneficial interest in the property for her on trust and a loan of $82,000 plus interest was secured over Mr Milenkovic's remaining half interest.

139 Following this conversation, Mr Belleli asked his employed solicitor, Mr David Rewell, who was principally in charge of the litigation, to draft a charge over Stanley St, utilising a firm precedent. Mr Rewell confirms this portion of Mr Belleli's evidence.

140 Mr Belleli says that the plaintiff did not attend the meeting on 16 June 2006, which was between he and Mr Milenkovic. He could not recall with any precision whether or not Mr Rewell also present, but thought not.[108] He agreed that the plaintiff did attend some meetings with Mr Milenkovic in relation to the VCAT proceeding, but says that he had no discussions with Mr Milenkovic in her presence about the giving of a charge prior to 21 June 2006.[109] He denies that the plaintiff or Mr Milenkovic told him at any time of her claimed interests in Stanley St.

141 The plaintiff, by contrast, says that she accompanied her husband, at his request, to a meeting with Mr Belleli in around mid June 2006. She could not recall the date more precisely. She said in cross examination that she may have been to Mr Belleli's office on one prior occasion. The plaintiff said in her affidavit that at the meeting her husband and Mr Belleli had a discussion about barrister's fees, and Mr Belleli said that 'if Milic wasn't going to pay the barrister directly' he, Mr Belleli would need security for the barrister's fees. Her husband disputed the need for any security, as he was paying all his bills on time. Mr Belleli suggested giving security over the house in Brunswick that Mr Milenkovic owned. On the plaintiff's evidence, she then said that her husband could not do that, as half the house was hers- Michael held it on trust for her- and also she had lent him money which was secured against Stanley St. The plaintiff repeated this account in cross examination.

142 It follows that there is a direct conflict between the evidence of Mr Belleli, supported by that of Mr Rewell, and that of the plaintiff, supported by her husband, as to the purpose of the proposed charge and whether or not the plaintiff told Mr Belleli of her claimed interests.

143 Mr Belleli's recall of the meeting on 16 June 2006, when tested in cross examination was poor. I do not consider that there was any conscious attempt on his part to reconstruct events, but I think it likely that to some extent his account of what occurred was, as put to him by counsel, a reconstruction, rather than an independent recollection. I do, however, accept his evidence as to what did not occur i.e. that he was not told by Mr Milenkovic, or indeed by the plaintiff, about any interest the plaintiff had in the property. His answer that, if that had occurred it would have stuck in his mind,[110] is entirely plausible, and persuasive.

144 I do not accept the plaintiff's evidence. First, on her account, the discussion must have taken place prior to the execution of the BKA Charge, because it was about the giving of security not yet given. I consider it highly unlikely that a solicitor concerned to obtain security for professional fees would proceed to accept that security, after being told of such unregistered equitable interests, without at least making substantial further enquiries. The plaintiff says that Mr Belleli did not 'push' the issue after being told of her interests. This is not credible. I accept the evidence of Mr Belleli that had he known of her claimed interests, he would have required her to also give security, or would have insisted on some other form of security. [111]

145 Secondly, there is no contemporaneous corroboration of her account. She herself does not produce any notes of the meeting, and says that she does not recall taking notes.[112] By contrast, the plaintiff does produce notes of a later meeting, on 21 July 2006, and her husband says that when she attended meetings with him at the BKA offices it was mainly to take notes.[113] It seems surprising at least that on such a crucial issue she would not have recorded a note of the exchange, even if she was not otherwise taking notes on that occasion. She says that she has only been able to locate one set of notes of a meeting, being the meeting on 21 July 2006.

146 The contemporaneous documents that are in evidence, by contrast, support Mr Belleli's evidence that the plaintiff did not attend his meeting with Mr Milenkovic on 16 June 2006, or any meeting in mid 2006 prior to 21 July 2006. The principal BKA time ledger for the VCAT proceeding[114] records an attendance by Mr Belleli on 'Michael and David Rewell in conference to discuss strategy for hearing' on 16 June 2006 lasting 30 minutes. The plaintiff is not recorded as being in attendance. She is, however, recorded as being in attendance at the meeting on 21 July 2006, described as 'Jenny', together with her husband, described as 'client', and 'David' (presumably David Rewell). There are other references to her attending or attendances by telephone on her in the ledger. There is a record of an attendance on her by Mr Belleli on 8 September 2005, while her husband was away overseas, to go through the claim, and other attendances on her by telephone in August and September 2005, and an attendance by her on 31 July 2006 to drop off a 'check'. The time record appears detailed, and so the absence of reference to any attendance by her at a meeting in mid-2006 prior to 21 July 2006 weighs against her evidence.

147 Next, the oral evidence of Mr Milenkovic in my view corroborating her account is not persuasive. He gives the same account as her in his affidavit, in virtually identical terms,[115] but under cross examination did not appear initially able to recall the meeting in question at all until reminded that he had given an account in his affidavit of a meeting with Mr Belleli he attended with the plaintiff.[116] He said in explanation for his poor memory that he was by that time of the day affected in the giving of his evidence by medication he takes for pain relief.[117] When reminded that he had given an account of such a meeting in his affidavit he recited the contents of the paragraph of his affidavit but said he could not recall anything further.[118] When Mr Belleli's account of the meeting between the two of them on 16 June 2006 was put to him in detail, he initially said he could not recall any such meeting.[119] When it was put to him that, on Mr Belleli's account, he had failed to pay a requested $15,000, however, he gave a voluble and detailed answer to the effect that he had made repeated requests for cost and time ledgers, didn't receive them at the time, and when he checked them recently they showed that he didn't owe that sum, and not all meetings were recorded in the time and costs ledgers.[120]

148 Mr Milenkovic was thus well able to recall, despite the effect of medication on him, his requests in 2006 for proof of costs being incurred and his indignation at the request for $15,000, although he could not recall any details of a crucial meeting at which his wife disclosed her interests in Stanley St in the context of a request for security for legal costs. I accept that Mr Milenkovic may well have been affected by the pain relief he was taking at the time of giving his evidence, in the afternoon, but his selective power of recall gives me no confidence in his limited memory of the meeting.

149 Further, the account given by Mr Belleli of events, i.e. that he requested security and Mr Milenkovic agreed to give it over Stanley St, saying he was the owner, and Mr Belleli then asked Mr Rewell to prepare the charge, is corroborated by Mr Rewell's evidence. Mr Rewell was an impressive witness. He was calm and clear. My impression from the content and manner of his evidence was that if he could not recall something he said so, and what he could recall was supported by contemporaneous documents. He produces a file note of a telephone conversation with Mr Milenkovic after being directed by Mr Belleli to prepare the charge, which shows a reference to Stanley St. He then obtained a title search, which at that time did not disclose any equitable interest claimed by the plaintiff. The file note[121] is not extensive. The relevant portions simply note the address and 'Milic Milenkovic'. The file note does not state that Mr Milenkovic is the owner of the property, but the inclusion of his name, in its original not Anglicised form, is consistent with Mr Rewell's evidence that Mr Milenkovic told him on the telephone that he was the owner. None of these matters is consistent with the plaintiff in Mr Milenkovic's presence having told Mr Belleli that security over Stanley St could not be given because half of the house was hers, and she held security for a loan over the other half.

150 Having regard to this analysis of the evidence, I find that the plaintiff did not tell Mr Belleli as she claims of her interests in Stanley St prior to execution of the BKA Charge.

151 By way of completeness, I also note that the plaintiff's evidence that she told Mr Belleli of her claimed interest by way of loan, in addition to her claimed interest by way of trust, is not consistent with her pleading. In her Points of Claim she recites both the claimed interests, by way of trust and by way of the Loan Agreement and Charge. The defendants did not admit these interests in their Points of Defence and Counterclaim and positively asserted that they were not on notice of either the trust, or the Charge if they existed, until 29 October 2012 when advised of same by the plaintiff's solicitors. In the plaintiff's reply she asserts positively and in detail that she disclosed her interest by way of trust to Mr Belleli at a meeting in June 2006, but does not positively plead disclosure of her interest by way of the Charge at that or any other time, although the reply contains other reference to the Charge.

152 The discrepancy between her reply and her oral evidence was put to the plaintiff in cross examination. She could not give an explanation for the omission of reference to disclosure of the Charge in the reply, other than that she may have 'missed it' or, by implication, her counsel may have omitted to include it.[122] I do not accept that explanation. The reply is detailed, and was drafted by counsel. It is otherwise consistent with her evidence. No application was made to amend it and no evidence on this issue was adduced in re-examination.

153 Although I do not accept the plaintiff's explanation, I do not place as much weight on this discrepancy as I do on the analysis of the evidence. The discrepancy, to the same limited extent, also supports my conclusion that the Loan Agreement was regarded by the plaintiff as less significant than the trust.

154 There is no dispute that Mr Milenkovic executed the BKA Charge on the date it bears, 21 June 2006. Mr Milenkovic says that he was called urgently into the BKA offices that day to sign a witness statement, which was late, and nothing was explained to him about the charge or its implications. He did not dispute signing it, but said he could only recall signing 'a huge witness statement'. He said the charge may have been among those papers. On his account his attendance was rushed because the witness statement had to be faxed back to VCAT urgently.[123]

155 The charge contains a final sentence providing for the discharge of the charge on payment of 'costs outstanding to (BKA)'. Mr Rewell says that he showed Mr Milenkovic the charge in draft, and Mr Milenkovic requested that this final sentence be inserted. When Mr Rewell's evidence was put to him, Mr Milenkovic could not recall asking for the inclusion of the final sentence.[124]

156 As noted earlier, Mr Rewell's evidence was careful, detailed and consistent with contemporaneous documents. Mr Milenkovic's ability to recall events at this trial was at best affected by his medication, and at worst selective. For these reasons, I consider the evidence of Mr Rewell as to the execution of the BKA Charge more likely accurate than that of Mr Milenkovic. It is particularly telling that Mr Milenkovic required the final sentence to be included. In my view, this shows Mr Milenkovic read the charge carefully, considered it, and by requiring the amendment showed that he understood it. I find that he read the BKA Charge, understood its effect as security, and did not disclose any interest in the property held by his wife.

157 The plaintiff contends that the BKA Charge secured disbursements, in particular counsel fees, only. On Mr Belleli's account, his intention in obtaining the BKA Charge was to protect himself against unpaid professional fees due to his firm, not counsel fees.[125] The BKA Charge in terms includes counsel fees, but Mr Belleli said that he considered it sufficient security only in respect of solicitors' fees and small counsel fees, but not substantial counsel fees.[126] His evidence is that he remained concerned about possible liability for trial counsel fees, if Mr Milenkovic did not abide by his agreement with counsel to pay him directly. The parties agree that there was a telephone discussion between Mr Belleli and the plaintiff about security by way of mortgage over Cabinda Drive for counsel fees. They differ, however, as to whether it was to be by way of further security i.e. additional to the security over Stanley St, or instead of it. There is no dispute that the mortgage did not proceed. Their detailed evidence is as follows.

158 Mr Belleli says that due to his concern about potential liability for trial counsel fees, he had discussions with trial counsel, Mr Joe Forrest, in the period 21-23 June 2006. This was immediately prior to the scheduled commencement of the trial at VCAT on Monday 26 June 2006. As a result of those discussions, he understood that Mr Forrest would hold him liable for his fees, if not those fees were not paid directly by Mr Milenkovic. Mr Belleli's evidence is that there was a conference call between himself, Mr Milenkovic, Mr Rewell and Mr Forrest on 23 June 2006, during which Mr Forrest said that Mr Milenkovic either had to deposit funds in trust for counsel fees or he would hold BKA liable for his fees if not paid.[127] Mr Rewell confirms that this telephone call took place.

159 Mr Belleli says that following this conference call, he had a further conversation with Mr Milenkovic in which he told Mr Milenkovic that he needed to provide the funds to cover counsel fees. When Mr Milenkovic said that he did not have the funds to do that, Mr Belleli said that he needed better security and proposed a mortgage over the Cabinda Drive home, which he assumed at that time was in both names. He made arrangements with Mr Milenkovic to meet with him and the plaintiff over the weekend to sign the mortgage documents, and arranged with his office to have the mortgage documents prepared.[128]

160 This evidence is consistent with the time ledger entries made at the time.[129] They record a conference call between Mr Belleli, Mr Milenkovic, Mr Forrest and Mr Rewell in relation to 'monet (sic) for Joes brief', which lasted 24 minutes on 23 June 2006. The next entry on the time ledger records that on the same day, 'BW', presumably the conveyancing clerk Betty Watkins that Mr Belleli identifies, drew, engrossed, typed and copied mortgage documents 'as per JB instructions'.

161 Mr Rewell also confirms that there was such a conference call. He could not recall if he was present for a further conversation between Mr Belleli and Mr Milenkovic, in which a mortgage over Cabinda Drive was discussed, but remembers being aware of such discussions at some point between the signing of the BKA Charge (on 21 June 2006) and the commencement of the trial in VCAT ( which was to be Monday 26 June 2006).[130]

162 Mr Milenkovic does not refer to events between 21 June 2006 and the conclusion of the VCAT proceeding in February 2008 at all in his affidavit (other than further loans pursuant to the Loan Agreement). When Mr Belleli's account of the telephone call and subsequent conversation between he and Mr Milenkovic was put to him in cross examination, Mr Milenkovic said he could not recall them, and became increasingly indignant and unresponsive in his answers.[131] His evidence is not helpful in my determination as to what occurred at this time.

163 As noted earlier, Mr Belleli's recall of events in 2006 was poor, and in his cross examination on these conversations he appeared to become flustered. He gave a different account to Mr Rewell, whose recall appears better, in relation to whether or not Mr Milenkovic was present, or also on the telephone. Mr Belleli said Mr Milenkovic was present[132], but Mr Rewell did not recall him being there. This would seem more consistent with the entry on the time ledger which reads 'Telephone call from Micheal Joe and david cof. call'.[133] Apart from this discrepancy, however, Mr Rewell's evidence supports that of Mr Belleli, and the thrust of Mr Belleli's evidence is consistent with the time ledger, a contemporaneous document.

164 Mr Belleli was very strenuously cross examined to the effect that there was no necessity for a mortgage over Cabinda Drive in respect of counsel fees given that the BKA Charge had been obtained, and extended in its terms to counsel fees. It was put to him at the conclusion of that cross examination that the conversation that he recounted having had with Mr Milenkovic on 23 June 2006, in which a mortgage over Cabinda Drive was discussed, did not in fact occur.[134] He denied that, and essentially confirmed his evidence on affidavit. He also gave an explanation as to why he wanted both the Stanley St charge, and a mortgage over the home. That explanation was to the effect that the Stanley St charge was designed for his fees and small counsel fees only; and also that a mortgage over a home was a more persuasive, and so better, security.[135] I consider that explanation plausible.

165 I find that the conversation with Mr Milenkovic that Mr Belleli recounts did occur, and that its content was generally in accordance with his evidence. In other words, I find that there was a specific discussion between Mr Milenkovic and Mr Belleli on Friday 23 June 2006 in which Mr Belleli proposed a mortgage over Cabinda Drive, which required the plaintiff's agreement, to cover trial counsel fees.

166 Mr Belleli's account is that he spoke to both Mr Milenkovic and the plaintiff on the telephone on Saturday 24 June 2006 in relation to the proposed mortgage and that one of them told him that they had raised $20,000 to pay counsel directly. This account is consistent with the entry on the time ledger.[136]

167 The plaintiff in her affidavit agrees that there was a telephone conversation between her and Mr Belleli in which he raised the issue of security for the barrister's fees. Her evidence is that Mr Belleli said 'If Michael can't give a charge over Stanley Street, you should give a charge over your home'. She said she would not. The plaintiff said that this telephone call took place a few days after the meeting she recounted in June 2006. [137] In cross examination she did not recall features of the conversation that Mr Belleli recounted (that it was on Saturday 24 June 2006; that Mr Milenkovic was also on the telephone; that $20,000 was discussed; that there was now no need for a mortgage). She recalled only the precise account that she had given in her affidavit.[138] Mr Milenkovic gives no account of any telephone conversation to either effect in his affidavit, and was not asked about it in oral evidence.

168 The events these witnesses were describing occurred, by the time of this trial, nearly eight years before. It would be unusual for any of them to have a clear recollection of those events, unless they had refreshed their memory from a document created at the time. There are two such documents that record events consistent with the account given by Mr Belleli and Mr Rewell. Those documents are the BKA Charge, signed on 21 June 2006, and the time ledger, which records the telephone conference on 23 June 2006, the preparation of mortgage documents and a telephone conversation (being a record apparently entered on 26 June 2006) that took place on 24 June 2006. That record does not refer to the mortgage not needing to proceed, but it does refer specifically to each of the other features recounted by Mr Belleli, which the plaintiff could not recall.

169 The plaintiff makes no reference to any such document or record. Her evidence in response to Mr Belleli's account when it was put to her in cross examination was limited to what she had already said, apparently without the benefit of any contemporaneous record, in her affidavit. Her account is not consistent with the proved fact (which she does not dispute) of the BKA Charge having been executed on 21 June 2006. It makes no sense for Mr Belleli to say 'If Michael can't give a charge over Stanley St', when, according to the contemporaneous records of the BKA Charge and the time ledger record, Mr Milenkovic had already done so. I do not accept the plaintiff's evidence as to the telephone conversation. I find that Mr Belleli's account is what in fact occurred. It follows that Mr Belleli has established a basis for his contention that the BKA Charge secured solicitor's fees.

170 The plaintiff, Mr Milenkovic, Mr Belleli and Mr Rewell all agree that they met at the BKA offices on 21 July 2006. Each of the plaintiff, Mr Belleli and Mr Rewell took notes of that meeting, and those notes are in evidence.[139] The fact in dispute is whether Mr Belleli made reference at this meeting to the BKA Charge. He says that he did; the plaintiff and Mr Milenkovic say that he did not. For the following reasons, I accept their evidence on this point, and do not accept Mr Belleli's evidence that there was any such reference.

171 First, Mr Rewell does not recall the BKA Charge being raised and says that the handwritten notes he took of the meeting do not refer to it.[140]

172 Next, there is no reference to any such discussion in the notes taken by the plaintiff. Her notes are the most extensive of the three sets of handwritten notes. Mr Belleli's handwritten notes extend over one page only; Mr Rewell's over two, in each case broadly spaced across the page; whereas the plaintiff's notes extend over six and a half pages and are written more densely across the page.

173 Thirdly, in other respects the notes agree, and their content does not support Mr Belleli's account. All the notes show a discussion about legal costs. The notes taken by the plaintiff and by Mr Belleli both refer to the difference between an earlier estimate for legal costs of $12,000 and a bill for $19,000; to solicitor/client as opposed to party/party costs; and to security for costs. Towards the end of the plaintiff's notes, there is an entry written in Mr Belleli's handwriting that 'Jerry is better looking than Michael'. In my view, given the plaintiff's claimed interests in Stanley St and the concern already being expressed at this meeting about legal costs, if the BKA Charge was revealed at this meeting she would have recorded it, and would not have been amenable to Mr Belleli writing a jocular remark on her notebook.

174 The words on which Mr Belleli relies to show that he referred in the meeting to the BKA Charge are the words 'Private Security' at the bottom of his page of notes. He accepted in cross examination that his notes do not contain the word 'charge', but says he was referring to the charge by noting 'Private Security' and 'Payment'. I accept the plaintiff's submission that a reference to 'Private Security', would be an unusual way for a solicitor to refer to a charge, and that it is more likely a reference to private security if security for costs was sought, as was under discussion.

175 I consider it likely that Mr Belleli has no independent recollection of referring to the BKA Charge at this meeting, and his evidence that he did so is a wishful reconstruction, based on his notes. This proposition was put to him in cross examination, and he at one point appeared to accept it. [141] I find that there was no reference made by Mr Belleli to the BKA Charge at this meeting.

176 Mr Belleli says that he 'is confident that there were other discussions' about the BKA Charge, but discussion at the 21 July meeting is the only one he could 'pinpoint'.[142] That discussion is not proved. The plaintiff says that she was not told of the BKA Charge by her husband at any time, and only learnt of it in 2011.[143] By implication, she was never told by either Mr Rewell or Mr Belleli. Mr Rewell does not say he told her. The plaintiff says that Mr Rewell never asked her about her or her husband's financial position[144] (which might have led to a disclosure of the BKA Charge) and Mr Rewell agrees. I do not consider it proved that BKA notified the plaintiff of the BKA Charge at any point before or after it was given.

177 The charge in terms secures the payment of 'all legal costs, Counsel fees and disbursements' already incurred by the date of the charge, or thereafter incurred, provided those costs and disbursements relate either to legal assistance in respect of an identified VCAT proceeding or in connection with the filing and removal of a caveat over the land. The plaintiff submits that 'the BKA Charge is not clear, on its face, as to whether it was intended to extend to BKA's fees for its own legal services, or whether it was intended to extend only to third party legal costs and disbursements (including counsel's fees) for which BKA would be liable'.[145] The defendants submit that it is plain that the BKA Charge extends to solicitors' fees. They do not claim any counsel fees.

178 I consider it entirely plain on the face of the BKA Charge that it extended to solicitors' fees, as well as counsel fees and disbursements. If there were any doubt, I also accept Mr Belleli's evidence as to the nature of the sums it was to secure and Mr Rewell's evidence that Mr Milenkovic required the final sentence to be included. As discussed earlier, in my view this shows that Mr Milenkovic, contrary to his recall now, had an appreciation of the intent of the BKA Charge, in particular that it extended to solicitors' fees, before signing it. Further, I have not accepted the evidence given by the plaintiff of discussions with Mr Belleli at a meeting in mid June 2006 and later on the telephone that might otherwise have suggested that the charge was to relate to counsel fees only.

179 In their written final submissions, the defendants calculated the amount charged by reference to the judgment debt, less the amount recovered on the execution of the warrant by sale of Mr Milenkovic's interest in the property at the Sheriff's auction. The plaintiff by contrast calculated the amount charged by reference to the invoices underpinning that judgement, with adjustment for amounts which the plaintiff contended were not secured by the BKA Charge. I consider this the preferable way to proceed as the claim is made on the basis of the charge, not the judgment debt.

180 There are six such invoices for legal costs, said to have been unpaid or paid only in part. Those invoices are Exhibits 9, 10, 12, 13, 14 and 15. The plaintiff accepts that the invoices that are Exhibits 12-15 are subject to the BKA Charge. By the time of the oral closing submissions, the parties had also agreed that there should have been a reduction of $3,032.10 by way of principal to the amount secured, because this amount, paid on 31 January 2006, was applied to the wrong account in error. The defendants also agreed that the whole of the amount recovered pursuant to the warrant, $23,000, should be deducted, even though the judgment debt included amounts not secured by the BKA Charge.

181 Accordingly, the parties remain in dispute only in respect of costs claimed in the first invoice and part of the second, which the plaintiff submits were not legal costs incurred in respect of the VCAT proceeding. Helpfully, counsel handed up on 31 March 2014 a set of spread sheets identifying their respective positions. The plaintiff relies on Table 4 of that set which calculates the amount secured (as at that date) as $43,341.55. The defendants rely on Table 5. Table 5 includes the whole of the first invoice (an extra $1230.10 as at 30 September 2004) and more of the second invoice than is conceded by the plaintiff ($2325.01 as at 20 October 2005, as opposed to the plaintiff's contention that only $213.01 is secured). The effect of this difference is to increase, in the defendants' case, the principal to $42,153.75, instead of $38,811.65 as calculated by the plaintiff. After the application of interest, the effect is that the amount secured as at 31 March 2014 was $50,724.14.

182 The first invoice[146] is dated 30 September 2004 and seeks payment of $2,880.02. It is directed to Mr Milenkovic personally, and is headed 'Dispute with 2 M's Constructions Pty Ltd'. It seeks payment of legal costs for the period 23 August 2004 (taking instructions) to letter reporting to Mr Milenkovic on 22 September 2004, with various tasks and attendances in between.

183 The second invoice[147] is dated 20 October 2005. It also is directed to Mr Milenkovic personally and headed 'Dispute with 2M's Constructions Pty Ltd'. It seeks payment in the sum of $5,357.11 for professional services from 1 October 2004, including perusal of correspondence from other solicitors and drawing and engrossing a 'transcript of interview' with Mr Milenkovic.

184 In cross examination, Mr Belleli agreed that the accounts ledger relating to these two invoices was account ledger 28064 in the name of Mr Milenkovic.[148] That account number is also shown on the invoices themselves. The time ledger for that account shows entries from 23 August 2004 (taking instructions) to 13 February 2006 i.e. after the date of the second invoice. The entry relating to that invoice on 21 October 2005 records that the invoice billed time to 28 June 2005. That is the date of the preceding entry, which records a letter to client. In other words, the second invoice seeks to recover legal costs for work done to 28 June 2005.

185 A distinct account ledger is in evidence, account 28996,[149] entitled 'Mr Michael Milenkovic VCAT proceedings by Hoanbg Tran Investments Pty Ltd. It commences with the payment of a counterclaim fee on 8 September 2005. The accompanying time ledger commences on 25 May 2005 with a telephone call leaving a message for Mr Milenkovic that a mediation was proceeding 'on Thursday' and an attendance on him which included perusing 'material from VCAT'. This ledger is the source of the invoices which are Exhibits 12-15, and are conceded to relate to amounts properly charged by the BKA Charge.

186 I infer from the ledger that the VCAT proceeding had commenced by 25 May 2005 and that Mr Milenkovic had been required or requested to attend a mediation around that time, although he did not file his counterclaim until 8 September 2005. This is consistent with Mr Belleli's evidence that he first obtained instructions from Mr Milenkovic in respect of the VCAT proceeding, Hoang Tran Investments Pty Ltd v 2 M's Constructions (which is the proceeding identified in the BKA Charge) in April or May 2005.[150] The plaintiff accordingly submits that any legal costs incurred for work done prior to that date are not secured by the BKA Charge.

187 Mr Belleli did not agree in cross examination that the prior work was not in respect of the VCAT proceeding. He said the prior work, the subject of the first invoice and the disputed component of the second invoice, related to the same dispute and subject matter that later became the subject matter of the proceeding, and so in that sense related to the VCAT proceeding, although it predated it.[151] It is on that basis that the defendants assert that the legal costs for this prior work are also secured by the BKA Charge.

188 I understand the practical and factual basis on which this submission is put. It is also the case that costs orders are sometimes made in court proceedings that encompass pre-litigation work relating to the dispute that later forms the subject matter of the proceeding. However, in this instance the defendants seek to recover on a charge which specifically limits the amounts secured to those incurred in respect of a named proceeding. I do not think, given that precise wording, that amounts incurred prior to first instructions in that proceeding are secured.

189 For these reasons, I prefer the approach taken by the plaintiff to the calculation of the secured amount. I find that as at 31 March 2014 the amount secured by the BKA Charge was $43,431.55.

190 A purchaser at a Sheriff's auction pursuant to a warrant of seizure and sale purchases the beneficial interest of the registered proprietor in the land as at the date of the sale. This is clear from the authorities to which the parties referred me, commencing from the Full Court decision Rowe v The Equity Trustees Executors and Agency Company Limited,[152] ('Rowe') and followed in the single judge decisions Bruce v Woods,[153] Mitrovic v Koren [154] and Pirpiris v Iovanella ('Pirpiris'). [155]

191 The principle is most neatly expressed by Gowans J in Mitrovic v Koren in the statement: '...it is only the debtor's interest in the land that the sheriff can sell... until registration, it would only be an interest in equity.[156] In Rowe, the Full Court described the nature of that interest as a charge on the interest of the registered proprietor. The Full Court held that a purchaser at a sheriff's auction had no right to compel the Registrar of Titles to register his transfer from the sheriff, because, adopting the words used in Re Shears and Alder[157] '(t)the purchaser from the sheriff, in fact, only buys a charge upon the judgment debtor's interest in the land, and that charge is clearly subject to any earlier equitable or legal charge.'[158]

192 There is no dispute between the parties as to these statements of principle. What is necessary to determine so as to apply the principles, is what beneficial interest did Mr Milenkovic hold as at the date of the Sheriff's sale? If, as the plaintiff contends, he held one half of the beneficial interest in the property on trust for her, and his remaining one half beneficial interest was charged with amounts owing to her pursuant to the Loan Agreement, then, subject to any question of postponement of prior equitable interests, as at the date of the sale Legal Chicks acquired only the equity remaining in the property after discharge of the registered mortgage to Westpac, the plaintiff's equitable interests, the interest created by the BKA Charge, and any equitable interest properly claimable by Ares Global or its assignee.

193 Legal Chicks sought to assert its rights by application made 20 January 2011 to remove the caveat lodged by Ares Global. The caveat was subsequently removed, and Legal Chicks lodged its transfer for registration on 7 March 2011, after securing the consent of Westpac to the registration. Mr Belleli says it was at that time that he first became aware of the caveat that the plaintiff lodged on 19 January 2011 the day prior to the Sheriff's sale.[159] The transfer to Legal Chicks was not registered. The evidence does not disclose in detail what then transpired as between the plaintiff and Legal Chicks save that it appears that there was correspondence.

194 I have found that the plaintiff has proved her claimed prior equitable interest by way of trust, but not her claimed prior equitable interest by way of charge. The interest of the registered mortgagee has been discharged by mortgagee sale, and Ares Global or any assignee has not taken action to make any claim. Accordingly, subject to any question of postponement of the plaintiff's interest by way of trust, Legal Chicks' interest in the funds in court is only Mr Milenkovic's remaining half interest, and is subject to the BKA Charge. Legal Chicks does not seek any postponement of the prior interest of the first and second defendants by way of the BKA Charge.

195 I now turn to the question of postponement of the plaintiff's interest by way of trust.

196 The question arises in two respects: first, as against the interest claimed by the first and second defendants pursuant to the BKA Charge; and secondly as against the interest claimed by Legal Chicks arising from its purchase of Mr Milenkovic's beneficial interest in the property.

197 The principles that apply to the determination of priority disputes as between equitable interests have been the subject of consideration by the High Court in a number of cases including Butler v Fairclough,[160] J &J Just (Holdings) Pty Ltd v Bank of New South Wales ('Just')[161] and Heid v Reliance Finance Corporation Pty Ltd ('Heid').[162] These and other authorities were the subject of detailed consideration by the Full Court of the Supreme Court of Victoria in Jacobs v Platt Nominees Pty Ltd and ors ('Platt Nominees')[163]. Priority as between equitable interests was also the subject of the later Court of Appeal decision Moffett v Dillon,[164] but in that case the holder of the equitable interest created second in time had actual knowledge of the first interest, and so the facts are less similar to those before me in this case. Platt Nominees is thus a convenient starting point, as in that case, as here, there was no actual knowledge of the interest first in time held by the holder of the equitable interest created second in time.

198 In Platt Nominees, the plaintiff was the daughter of the sole directors and owners of the corporate registered proprietor of the subject land. With the active assistance of her mother, she acquired in July 1988 an option to purchase the land from the company. She did not lodge a caveat in respect of the option. She exercised the option on Friday 2 September 1988. On the following Monday, 5 September 1988 at the instance of her father the company entered into a contract for the sale of the land to a second purchaser. The second purchaser was unaware of the option or that the daughter had exercised it. The daughter in turn was unaware of the negotiations leading to the purported sale to the second purchaser. She brought proceedings for specific performance of the contract for the sale of the land to her. At trial she was unsuccessful. The trial judge held that her interest should be postponed to that of the second purchaser. The trial judge placed considerable emphasis on the fact that she had not lodged a caveat in respect of the option.

199 On appeal, the daughter was successful. The Full Court overturned the trial judge's conclusions in so far as they were based on an estoppel by her omission to lodge a caveat. They held that viewing that omission as a representation on which the second purchaser relied to its detriment was 'wholly inapposite'.

200 First, the Court applied the analysis and words of Windeyer J in Just that 'the primary purpose of a caveat against dealing is not to give notice to the world of an interest. It is to warn the Registrar-General of a claim'.[165] The Court in Platt Nominees described it thus: '(t)he primary purpose of a caveat is, as was said in Just's Case to provide protection for the caveator not to give notice to the world. The practice of lodging caveats is at best that and not a duty, much less a duty to the world at large.'[166] Further, in that case, expert evidence had been called as to conveyancing practice in relation to the lodgement of caveats. The Full Court held that that evidence did not show there was a 'settled practice' to lodge a caveat in respect of an option to purchase, or for a potential purchaser, there the second purchaser, to search the title prior to the contract for sale. Indeed, they accepted the argument that the obligations of disclosure imposed on a vendor by s 32 of the Sale of Land Act 1962 militated against the argument that a purchaser could assume no prior interest if no caveat as to same was on the title.

201 In summary in relation to estoppel, the Full Court held that the doctrine of estoppel is 'more appropriate to the cases where the parties armed the third party "with the power of going into the world under false colours"'.[167] Further, even where estoppel might apply, it requires proof of detriment more than a mere change of position to justify postponement of the earlier interest. No such detriment was shown in that case as the second purchaser had learnt of the first purchase by way of exercise of the option within days.

202 The Full Court in Platt Nominees also discussed the High Court case of Heid in some detail. In Heid, a vendor of land who retained a vendor's lien for the purchase price lost the priority of that interest as against equitable interests created later in time by the purchaser. His failure to lodge a caveat in respect of his interest was held not to be fatal to his case. All members of the High Court agreed, however, that postponement of his interest was appropriate having regard to his conduct in handing over to the purchaser a completed memorandum of transfer containing an acknowledgement of payment (although he had not in fact been paid) accompanied by the certificate of title. The majority, Gibbs CJ, Murphy and Wilson JJ held that by this conduct the vendor had put the purchaser in a position to represent himself as absolutely entitled to land in law and equity. In Platt Nominees, the Full Court noted that Gibbs CJ, Murphy and Wilson JJ 'essentially decided the case against the equitable interest that was prior in time on the basis of estoppel'[168]. Mason and Deane JJ, by contrast, saw difficulties in basing postponement exclusively on the doctrine of estoppel because of the frequent artificiality in identifying a relevant representation made by the holder of the interest first in time. They expressed their view in these passages in their joint judgment (some authorities and citations omitted):

For our part we consider it preferable to avoid the contortions and convolutions associated with basing the postponement of the first to the second equity exclusively on the doctrine of estoppel and to accept a more general and flexible principle that preference should be given to what is the better equity in an examination of the relevant circumstances. It will always be necessary to characterize the conduct of the holder of the earlier interest in order to determine whether, in all the circumstances, that conduct is such that, in fairness and in justice, the earlier interest should be postponed to the later interest....To say that the question involves general considerations of fairness and justice acknowledges that, in whatever form the relevant test be stated, the overriding question is ". . . whose is the better equity, bearing in mind the conduct of both parties, the question of any negligence on the part of the prior claimant, the effect of any representation as possibly raising an estoppel and whether it can be said that the conduct of the first or prior owner has enabled such a representation to be made. . . .": Sykes, Law of Securities, 3rd ed. (1978), p. 336; ...Thus elements of both negligence and estoppel will often be found in the statements of general principle: see, for example, Lapin v. Abigail (1930) 44 CLR, at p 204 , per Dixon J.

It may be that an equitable interest will not be postponed to an equitable interest created later in time merely because there is a causal nexus between an act or omission on the part of the prior equitable owner and an assumption on the part of the later equitable owner as to the non-existence of the prior equity. Fairness and justice demand that we be primarily concerned with acts of a certain kind - those acts during the carrying out of which it is reasonably foreseeable that a later equitable interest will be created and that the holder of that later interest will assume the non-existence of the earlier interest.

Thus, the mere failure of the holder of a prior equitable interest in land to lodge a caveat does not in itself involve the loss of priority which the time of the creation of the equitable interest would otherwise give (J. & H. Just (Holdings) Pty. Ltd. v. Bank of N.S.W.), notwithstanding that the person acquiring the later interest had, before acquiring that interest, searched the register book and ascertained that no caveat had been lodged. It is just one of the circumstances to be considered in determining whether it is inequitable that the prior equitable owner should retain his priority. [169]

203 The bulk of these passages was quoted with approval by the Full Court in Platt Nominees, which I take to indicate a preference for this more 'general and flexible principle'. That principle is that, prima facie, the interest prior in time takes priority, unless having regard to the conduct of the holder of the earlier interest in all the circumstances, that conduct is such that, in fairness and in justice, the earlier interest should be postponed to the later interest. Failure to lodge a caveat is but one of the circumstances to be considered.

204 The Full Court in Platt Nominees held that in the circumstances of that case, and particularly having regard to the explanation that the daughter gave for not lodging a caveat (that she did not want to upset her father), her failure to lodge a caveat was not sufficient to postpone her interest. They held that it was not negligent of her not to lodge a caveat, given that she knew that she had the support of her mother, even though her relationship with her father was strained. Accordingly, it was 'not reasonably foreseeable that her failure to lodge a caveat exposed herself or others to a risk of a later sale'.[170]

205 In Moffet v Dillon, all members of the Court of Appeal upheld the priority of an equitable interest created first in time against a later equitable interest created with actual notice of the earlier interest. Brooking JA, with whom Buchanan JA agreed, held that the actual notice was fatal to the contention that the later interest should prevail over the former. Ormiston JA agreed in the result, but preferred not to express a final view on the notice point, it not having been the subject of detailed argument. On his view, the correct approach was to start with the interest first created, and then inquire 'whether any event has occurred which would result in that interest being postponed to a later interest.'[171] In that case, the only reason advanced for postponing the prior equity was that the document creating it was not in registrable form, whereas the document creating the second equity was. All members of the Court held that this was not a relevant circumstance.

206 In summary, I consider that the law requires that in determining a priorities dispute all relevant circumstances must be considered, with particular emphasis on the conduct of the holder of the earlier interest (here the plaintiff) as it affected the grant of the later interests, and, if they arise, questions of notice. The mere failure to lodge a caveat is but one of those circumstances.

Postponement of the Milenkovic Trust to the BKA Charge

207 I have found that neither the plaintiff nor Mr Milenkovic disclosed either of her claimed interests to BKA prior to the BKA Charge. Mr Rewell searched the title to Stanley St prior to the BKA Charge, but there was at that time no indication on that title of any such interest. It was not suggested by the plaintiff that the defendants were on notice by any other means of her claimed interests at this time. Thus, the defendants were not on actual or constructive notice of the interests at the time of the BKA Charge.

208 The plaintiff's interest by way of trust precedes the BKA Charge, however, in time. Should it be postponed to that interest? In support of the contention that it should, the defendants rely on the following matters:

• no disclosure to them when it could have been expected following the reference to the BKA Charge by Mr Belleli;

• allowing Mr Milenkovic to make the untrue representation in the BKA Charge that he was the only beneficial owner, upon which BKA acted to its detriment; and

• untruthful evidence given by the plaintiff in relation to claimed disclosure of her interests to Mr Belleli at a meeting in June 2006.

209 In response to the first of these matters, the plaintiff notes that no expert evidence was adduced as to conveyancing practice in relation to the lodgement of caveats, and BKA did not itself lodge a caveat in respect of its own interest until it appeared that it may be at risk of not being paid. Further, as Just, Heid and Platt Nominees make clear, there is no duty placed on the holder of an equitable interest to disclose that interest to the world by way of lodgement of a caveat.

210 I discussed these matters earlier and concluded that the plaintiff's explanation for not lodging a caveat prior to January 2011, that she did not perceive her interest by way of the trust to be at risk until that time, should be accepted. The plaintiff's evidence that there was a meeting with Mr Belleli prior to the giving of the BKA Charge that she attended with Mr Belleli that she attended together with her husband and at which such a charge was sought, does sit oddly with this explanation, as by virtue of that meeting she would then have been aware that her interest may be at risk if such a charge was later given. This was not a matter that was ventilated in the evidence or in argument, however, and it may be sufficient answer that, on her case, Mr Milenkovic agreed at that meeting that the charge could not be given and so she had no reason to suspect that he would later give it.

211 The second matter relied upon by the defendants, is that the plaintiff did not disclose her interest to them (as opposed to the world at large) when it might have been expected that she would do so. As they put the submission, it only has work to do if I accept Mr Belleli's evidence that he referred to the BKA Charge at the 21 July 2006 meeting. As discussed earlier, I do not accept that evidence. The defendants do not assert any other specific occasion on which Mr Belleli referred to the BKA Charge in the plaintiff's presence, and although Mr Belleli says that there were other occasions, which he now cannot recall with precision, he does not say that any were any such occasions prior to the BKA Charge being given.[172]

212 Counsel for the plaintiff submits that there is no evidence that either Mr Belleli or Mr Rewell asked the plaintiff at any time about the existence of any interest in the property held by her. I accept this. Accordingly, no occasion is shown on the evidence on which the plaintiff might have been expected to disclose her interest in response to a question from Mr Belleli or Mr Rewell or in response to anything said by them.

213 BKA were not, of course, bound to enquire of the plaintiff whether or not she had an interest- their client was Mr Milenkovic, and I accept the defendants' submission that by the BKA Charge Mr Milenkovic represented that he was the sole beneficial owner. Further, I accept the evidence of Mr Belleli and Mr Rewell that this is what Mr Milenkovic had earlier effectively represented to them in the discussions with each of them that preceded the giving of the BKA Charge. Mr Belleli says that he asked Mr Milenkovic whether the property was 'encumbered'.[173] Counsel for the plaintiff seeks to make much of Mr Milenkovic's response when this was put to him in cross examination, to the effect that he does not know was 'encumbered' means. Counsel for the plaintiff also says it is of relevance that Mr Milenkovic was not asked about any trust.[174] In the preceding paragraph of his affidavit, however, Mr Belleli also said that Mr Milenkovic told him he 'owned' the property,[175] and Mr Rewell's evidence is that Mr Milenkovic told him that the property 'belonged' to him.[176] These were clear representations that there was no other beneficial owner. They are representations by Mr Milenkovic, however, and not by the plaintiff.

214 This brings me to the third matter relied on- did the plaintiff, as the defendants submit, allow Mr Milenkovic to go into the world 'under false colours' i.e. falsely represent the position as to ownership with the consequence that that conduct should result in the postponement of her interest by way of the trust?

215 In Heid, there was content to the conduct that resulted in postponement - handing over a completed transfer and the certificate of title. Those documents then directly enabled the purchaser to borrow on the security of the land and so create the subsequent interests. No such positive conduct by the plaintiff has been identified by the defendants in this case. The conduct that is relied upon by the defendants is conduct by omission.

216 Viewing her conduct at its mildest, by omitting to lodge a caveat prior to January 2011 or otherwise ensure that Mr Milenkovic disclosed her interests to potential lenders, the plaintiff was merely passive- she did not prevent Mr Milenkovic from representing himself as the sole owner. At its highest, her omission to lodge a caveat or otherwise ensure disclosure of her interests was a deliberate decision so as not to impair the capacity of Mr Milenkovic to borrow on the security of Stanley St. The plaintiff resisted this latter interpretation when it was put to her in cross examination. She said that, while she could now see the force of the proposition that disclosure of her interests would have made Mr Milenkovic a less attractive candidate for finance, she did not think about it in that way at the time of the earlier lending.[177] She then qualified her answer by noting that there would have been no difficulty if she agreed with the loan.[178]

217 In Platt Nominees the Full Court considered that a finding that the holder of an equitable interest deliberately omitted to lodge a caveat to advantage herself, there against a subsequent purchaser, would be an 'extremely adverse finding' where the balancing of equities and issues of conduct are involved.[179] It is necessary then to reach a view as to the nature of the plaintiff's conduct in this regard.

218 As discussed earlier, I consider it is probable that both she and Mr Milenkovic arranged their interests in property so as to protect their matrimonial home while preserving the capacity of Mr Milenkovic to borrow against Stanley St.[180] The plaintiff's equivocation in cross examination supports this inference. I do not think, however, that there is any evidence that she omitted to ensure disclosure as far as BKA was concerned to advantage her interests as against theirs.

219 There is a crucial distinction in my view between the earlier lending for business purposes and the solicitors' fees that the BKA Charge secured. It was apparent from the plaintiff's evidence that she was aware of the earlier lending by Liberty Finance, the CBA and later Westpac, and, by inference, prior to the security being given for those loans. Further, she agreed to those loans. By contrast, there is no evidence that she was aware that Mr Milenkovic had agreed to give the BKA Charge, or that she was aware of it at all prior to 2011, when lodgement of her own caveat would have brought it to her attention. Her evidence is that she was not,[181] and there is nothing to the contrary. Further, her evidence in relation to the alleged disclosure of her interests to Mr Belleli in June 2006 was to the effect that if the VCAT proceeding could only continue if the charge was to be given, then Mr Milenkovic should 'pull out of the whole deal and take his losses'[182]. I do not accept that this meeting took place, but I do accept that she would not have agreed to the giving of the security.

220 Further, I do not consider that it is proved that the plaintiff contemplated, or should reasonably have contemplated, that Mr Milenkovic might give the BKA Charge over her objections. The defendants did not put this to the plaintiff in cross examination, and did not elaborate their submission as one of negligence.

221 Thus, the plaintiff's knowing acquiescence to her husband putting Stanley St forward for security to lenders on the basis that he was the only owner may have been relevant in a priorities dispute with such a lender. I do not, however, consider it shown that there was any such knowing acquiescence in relation to the BKA Charge.

222 It follows from this analysis that the only conduct by which the plaintiff can be said to have allowed Mr Milenkovic to misrepresent the position to BKA is by not lodging a caveat. The second and third matters relied upon by the defendants, on analysis, are the same as the first. I do not consider that the defendants have shown that that omission, even if deliberate to facilitate business borrowing, is sufficient to justify postponement of her interest by way of trust to an interest acquired that was not conventional business borrowing, being the BKA Charge.

223 The final matter relied upon by the defendants to justify postponement of the plaintiff's prior interest is their submission that she was untruthful in her evidence about the June 2006 meeting. I accept that she was untruthful. Her evidence appeared considered and was maintained under cross-examination. She said she had no doubt about it, and did not seek to qualify it when the inconsistency with her reply was pointed out to her.[183] The plaintiff on her own evidence has excluded the possibility of mere faulty recollection. The defendants say that the plaintiff's false evidence should lead to postponement of her interest, because it 'goes the very heart of the question to be considered by the Court on a priorities dispute in determining the parties' rights, namely the question of notice of the prior interests claimed.'[184] They rely on the detailed discussion of the relevance of 'unclean hands' in Black Uhlans Incorporated v New South Wales Crime Commission and ors[185]('Black Uhlans') by Campbell J of the New South Wales Supreme Court in support of that submission, and in particular one of the cases there discussed, Armstrong v Sheppard & Short Ltd[186].

224 In Black Uhlans, Campbell J, after an exhaustive analysis of the authorities, concluded that the operation of the maxim, that a person who seeks equitable relief must have clean hands, may be triggered by an act of wrongful conduct by that person, but not by any such act, regardless of its nature or connection to the subject matter of the suit.[187] He traced the origin of the maxim, and identified an early statement of its requirements in Dering v Earl of Winchelsea[188]. In that case, it was held that the wrongful act must have 'an immediate and necessary relation to the equity sued for' and must be 'a depravity in a legal as well as in a moral sense'. These requirements remain the necessary condition for the deprivation of equitable relief that would otherwise be afforded to the person who has engaged in the wrongful conduct both in Australia, and in the United Kingdom, as the cases discussed by Campbell J show. In Meyers v Casey[189] Isaacs J (with whom Rich J agreed) distinguished the case of a party who seeks to assert a right brought into existence by his own wrongful conduct, and the case of a party who has engaged in wrongful conduct but the right that he seeks to assert exists independently of that wrongful conduct.[190] The case before the Court was held to fall within the latter category, and the relief sought was granted.

225 In Armstrong v Sheppard & Short Ltd, which is particularly relied upon by the defendants, equitable relief by way of injunction was refused to a landowner who had orally agreed to a trespass on his land, by way of construction of a sewer, although without knowing that it was in fact his land. At trial, he denied that he had so agreed, but was found to have done so. The Court relied on the fact that he had misled the Court in refusing the relief. The defendants rely on this case as authority for their proposition that relief should be refused to the plaintiff here because of her untruthfulness about disclosure to them.

226 Misleading the Court is a serious matter. I do not, however, consider that the plaintiff's untruthfulness in relation to disclosure justifies postponement of her interest to that of the first and second defendants. I reach that conclusion for the following reasons.

227 First, I consider that the defendants overstate in their submission the significance of notice by the plaintiff. The plaintiff as the holder of the interest first in time was not required to give notice of it to any person. Proof of notice to holders of subsequent interests is not essential to the maintenance of her prior interest. Priority in time is alone sufficient, in the absence of conduct justifying postponement.

228 The consequence of her evidence not being accepted is that she has not proved that she gave notice of her interests prior to the BKA Charge. Proof of notice would undoubtedly have put an end to any priorities dispute, and the failure to give notice, if notice could have been expected, would be a relevant circumstance in support of postponement. As discussed, however, I do not consider that the defendants have shown that the plaintiff could reasonably have been expected to give them notice of her interests. She wasn't asked about any interest she had, and she wasn't aware that Mr Milenkovic had agreed to give the BKA Charge. Accordingly, I do not consider that the essential requirement, that the wrongful conduct bear a 'necessary' relation to the relief that she seeks, is made out.

229 Secondly, the plaintiff's untruthfulness at trial about giving notice in 2006 to Mr Belleli of her interest played no role in the creation of the later and competing equitable interest pursuant to the BKA Charge. I have found she did not give notice, and reached that conclusion in part because I accepted that, had she done so, Mr Belleli would have taken steps in addition to seeking only Mr Milenkovic's consent to the BKA Charge. It follows that I do not consider that her untruthfulness now, about an inessential element to her claim, has the necessary 'immediate relation' to her claim pursuant to the trust, to justify postponing that claim to claims later in time.

230 The absence of these essential requirements is sufficient to dispose of the issue. In case I am incorrect in this analysis, and because misleading the Court was specifically relied upon in Armstrong v Sheppard & Short Ltd, I have, however, also considered other discretionary factors.

231 Campbell J noted in his extensive discussion of the authorities, that while the requirements identified n Dering v Earl of Winchelsea remain the necessary condition for the application of the 'unclean hands' maxim, they are not a sufficient condition. Other discretionary factors may come into play. In other words, there have been cases where despite the satisfaction of the baseline conditions for refusal of relief on the grounds of unclean hands, the equitable relief sought was still granted. Campbell J's analysis shows that one of the circumstances that may justify relief, even if the baseline conditions for refusing it are made out, has been the nature of the relief sought, and the availability of other relief.[191] In Armstrong v Sheppard & Short Ltd for example, the landowner was refused the relief of an injunction, but was successful (to a limited degree) in obtaining damages for trespass. His success was limited because he had suffered no loss, and this was a further reason for refusal of the injunctive relief.

232 Here, the relief that the plaintiff seeks is to obtain is enforcement of a prior equitable interest by way of first payment out from the residue in court. The defendants rely on her untruthfulness and so 'unclean hands' as a reason for postponing her interest not just to that of BKA, but also to Legal Chicks. There is no basis for distinguishing between the first and second, and the third, defendants in relation to this wrongful conduct because Mr Belleli was the guiding mind of the third defendant in relation to the Sheriff's auction. If her interest by way of trust were postponed to both the interests claimed by the defendants, then she would be denied any payment, notwithstanding what I have found to be financial contribution to Stanley St prior to the transfer to her husband. She does not seek any other form of relief. Having regard to this discretionary factor, I would not postpone her claim by reason of her untruthfulness at Court alone.

233 By this analysis I have sought to show that there are in truth only two matters on which the first and second defendants can rely to justify postponement of the plaintiff's interest by way of trust to theirs by way of the BKA Charge: her failure to lodge a caveat; and her untruthfulness as to whether she gave notice to Mr Belleli of her claimed interests. I have considered them separately, and concluded that neither alone justifies postponement. Nor do I think they do so viewed together. This is because it is only the failure to lodge a caveat, i.e. the first matter, that played any role in relation to the creation of the BKA Charge. As Mr Rewell searched the title for the preparation of the BKA Charge, if a caveat had been lodged, the first and second defendants would have been on notice of a claimed interest, and the BKA Charge may not have proceeded. The plaintiff was not untruthful as to any interest she had in the property at the time- she was not asked about any interest, and, I have found, was not present when the BKA Charge was requested. Heid and Platt Nominees show the emphasis must be on the conduct of the holder of the first interest particularly as it related to the creation of the second interest. The plaintiff's untruthfulness now played no role in relation to the creation of the BKA Charge.

234 It follows that I do not consider that the plaintiff's interest by way of trust should be postponed to that of the first and second defendants by way of the BKA Charge.

Postponement of the Milenkovic Trust to the interest acquired by Legal Chicks

235 The plaintiff submits that Rowe shows that postponement of the earlier interest is not possible, given the risks that a purchaser at sheriff's auction takes.

236 The defendants submit that there is no prior authority on the specific question as to whether an equitable interest created earlier in time to purchase of the registered proprietor's interest at a sheriff's auction can be postponed to the interest so acquired by the purchaser. They contend that none of Rowe, Bruce v Woods and Pirpiris unambiguously hold that the prior equity cannot be postponed on the usual priority dispute principles.[192]

237 In my view, the defendants are correct in their submission. None of the authorities to which the parties have taken me in relation to the interest acquired at a sheriff's auction determine that a prior equitable interest cannot, as a matter of law, be postponed to the interest acquired by the purchaser. No priorities issue was raised in Rowe (it was unsuccessfully argued by the purchaser that the earlier interest had not in fact been created, or, if it had, was void as a fraud on creditors); in Bruce v Woods both the plaintiff and the sheriff had actual knowledge of the earlier equitable interest prior the sheriff's sale[193] (and so there could be no priority dispute, and none was argued) and in Pirpiris the Court found that the claimed prior equitable interest did not exist.[194] McInerney J in Pirpiris made the comment that, had he found that the claimed interest by way of declaration of trust had been created, the purchaser's interest would have been postponed to that of the beneficiary of the trust,[195] but the comment was, on his findings, obiter, and in any event not determinative on the priority issue as the trust, if found, was the interest first in time.

238 The defendants submit that not only can a prior interest be postponed to that of the purchaser at the auction, but here it should be. They accept that the plaintiff lodged a caveat claiming an interest by way of trust on the day prior to the auction, but submit that that should not improve her priority. They rely on the fact that the Sheriff gave notice of interests disclosed to her prior to the auction, and this disclosure did not include any interest claimed by the plaintiff. Further, they say that Mr Belleli had conducted a title search, although not immediately prior to the auction, and his dealings with the plaintiff and Mr Milenkovic had 'raised no reasonable expectation that (the plaintiff) would or could claim an interest in the property'. They rely on the fact that Legal Chicks paid $23,000 without notice of the plaintiff's interests, which is described as 'detrimental reliance on an assumed state of affairs'. The final factor upon which they rely is the plaintiff's untruthfulness about prior notice.[196]

239 In my view these factors do not justify postponement of the plaintiff's interest, even if that is legally possible. The defendants in their submissions have not started from the correct point- that as first in time, the plaintiff's interest will have first claim, unless there is reason to postpone it. It is not a question of lodgement of her caveat 'improving' her equity- as first in time, it did not need improvement. The relevant issue is whether she did anything to justify postponement, or there is other reason for postponement. The plaintiff made no representation to Mr Belleli or Legal Chicks that she had no interest, and so there can be no estoppel or relevant 'detrimental reliance'. Mr Belleli and Legal Chicks relied on his earlier searches of the title and what the Sheriff said, not on what the plaintiff had said or done.

240 Certainly, the plaintiff's claim in her oral evidence[197] that she told the Sheriff of her claimed interests sits oddly with the fact that the Sheriff did not disclose any such interest at the auction. This discrepancy was not explored in the evidence, however, and there may be innocent explanation.

241 The defendants say that their prior dealings with the plaintiff and Mr Milenkovic had not raised any 'reasonable expectation' that she might have an interest in the property. Even if a fair summary of those dealings, it is not a reason to postpone the plaintiff's interest that the defendants (second in time) were not negligent, unless she (first in time) was negligent in some way. I doubt, however, whether it is a fair summary. The defendants were aware of Mr Milenkovic's claim in the VCAT proceeding to have a financial interest in properties that were not in his name. It would not have been a big leap to think that the plaintiff may then have a financial interest in a property in his name.

242 The final factor relied upon by the defendants is the same as in respect of the BKA Charge, i.e. that the plaintiff was untruthful in her evidence that she had given notice of her claimed interests to Mr Belleli in 2006. For the same reasons as discussed earlier, I do not consider it shown that this wrongful conduct had the required necessary and immediate connection to the plaintiff's assertion of her interest by way of the trust.

243 Further, in my view, the plaintiff is correct in her submission that her lodgement of a caveat prior to the auction and the inherent and here disclosed and known risk in purchase at a sheriff's auction provide a total answer to the claim by Legal Chicks for postponement. Mr Belleli agreed that he knew at the time that all that is sold at a sheriff's auction is the judgment debtor's interest, if any. The very Notice to Potential Purchasers for this sheriff's auction that he exhibits to his affidavit describes the interest to be sold in this way.[198] He agreed that there may be unregistered equitable interests detracting from the judgment debtor's interest, and that, as matter of principle, a purchaser at a sheriff's auction takes the risk of such interests. He had made enquiries about the value of Stanley St and was aware of the value of the encumbrances disclosed by the title and by the Sheriff. He agreed that in bidding on behalf of Legal Chicks and agreeing to pay $23,000 for Mr Milenkovic's interest he was taking a chance that he could 'get rid of' the Ares Global caveat and the interest it claimed. He agreed that a sheriff's auction is a 'lottery' and that he agreed to pay $23,000 for something that he knew might be worthless, but might be worth $220,000 if he could remove the Ares Global caveat. He agreed that he was willing to take that chance. He agreed that he was aware, as an experienced lawyer, that he could have searched the title again on the day of the auction, and did not do so, although he said it was not a conscious decision not to do so. [199] Had he done so, of course, he would have been on notice that the plaintiff claimed an interest by way of trust. In my view, these factors leave no room for any postponement of the plaintiff's prior interest.

244 I find that the plaintiff has proved her interest by way of the Milenkovic trust, but not by way of the Loan Agreement and Charge. Her interest is prior in time to that of the first and second defendants by way of the BKA Charge, and that of Legal Chicks by way of the auction. I do not consider that the defendants have shown that it should be postponed to either of those interests.

245 Enquiry today of the Funds in Court Office reveals that the principal now in court is $227,025.73, which includes interest to 1 June 2015. Interest is accruing from that date at the rate of approximately $3.10 per day. I will ask the parties to draw appropriate orders, in consultation with that Office, to provide that it be paid out in the following priority:

• as to one half of the principal, to the plaintiff or as she directs;

• from the remaining half of the principal, to the first and second defendants, or as they direct, the amount now owing under the BKA Charge, calculated to allow for interest from 1 April 2014 and on the basis that the amount so owing as at 31 March 2014 was $43,431.55; and

• the remainder of the principal, and any interest not yet applied to the principal, less any sum to be retained for taxation purposes, to the third defendant, or as it directs.

246 If the parties are unable to agree on the form or content of these orders, or in relation to costs, I will hear them further.

[1] JM-5 to her first affidavit sworn 26 June 2013, which is Exhibit A.

[2] Affidavit of Jerry Belleli affirmed 24 February 2014, which is Exhibit 7, at [65].

[3] Letter dated 11 May 2012 from Gadens, solicitors for Wespac, to, inter alia, BKA, which is Exhibit JB-5 to affidavit of Jerry Belleli affirmed 17 July 2013. That affidavit became Exhibit 6.

[5] In his affidavit sworn 25 February 2014, which is Exhibit F, at [4].

[10] Defendants' oral closing submissions

[30] The defendants sought to tender a record of convictions of Mr Chapman in the County Court in 2013 in relation to the weight to be afforded to his representation made on the Acknowledgement of Trust that he had witnessed the signatures of the plaintiff and Mr Milenkovic on the date it bears in 1999. I refused the tender. T 305.10- T 311. 1.

[35] This was conceded to be the case by counsel for the defendants at T 310.18-23.

[36] Affidavit sworn 28 February 2014, which became Exhibit 17.

[37] [1988] FCA 179; (1988) 18 FCR 449.

[42] Ibid, at 460 (Lockhardt J) and 468 (Beaumont J).

[56] Exhibit DAR-5 to the affidavit of David Arthur Rewell sworn 12 December 2013, Exhibit 16, at [11].

[57] Exhibit DAR-6 at transcript page 918.

[59] Exhibit DAR-7 at transcript page 203.

[63] T 26.31-T 27.12. See also T 74.25-27 to the same effect.

[66] A letter of 27 June 2011 from Westpac to Mr Milenkovic is referred to in Exhibit 2.

[75] [1988] FCA 179; (1988) 18 FCR 449, at 459.

[76] Exhibit JM-4 to the plaintiff's affidavit sworn 26 June 2013, which became Exhibit A in this trial.

[83] Points of Amended Defence and Counterclaim filed 2 April 2014 at [4].

[86] Exhibit H account ledger first entry.

[87] Exhibit H time ledger page 10, entry for 8 September 2005.

[90] Exhibit JM-5 to her first affidavit, Exhibit A.

[92] Declaration by the Sheriff, which is part of JB-5 to the second affidavit of Mr Belleli, Exhibit 7.

[99] Defendants' (Closing) Submissions at page 9 f).

[100] Mr Milenkovic says he was approached for the development, but wanted to borrow not for the development but to pay his wife back.

[103] Paragraph 13 of and exhibits DAR-3 and DAR-5 to the affidavit of David Arthur Rewell, which is Exhibit 16.

[110] T 256.14-20; reiterated at T 258.8-15.

[121] Exhibit DAR-1 to his affidavit sworn 12 December 2013, which became Exhibit 16.

[128] Exhibit 7 at [32]-[35], T 268.

[136] Exhibit H, page 17, entered as 260606.

[139] The plaintiff's notes are Exhibits D and E (marked up) with a typed version Exhibit E1. Mr Rewell's notes are Exhibit K. Mr Belleli's notes are exhibit JB3 to his affidavit, affirmed 24 February 2014.

[143] Second affidavit, Exhibit B at [29].

[145] Outline of Plaintiff's Final Submissions at [26].

[152] (1894) 21 VLR 762.

[153] [1951] VicLawRp 7; [1951] VLR 49.

[154] [1971] VicRp 61; [1971] VR 479.

[155] [1975] VicRp 12; [1975] VR 129.

[156] Mitrovic v Koren, [1971] VicRp 61; [1971] VR 479, at 481.9-27.

[158] (1894) 21 VLR 762 at 776 per Madden CJ, Williams J concurring.

[160] [1917] HCA 9; (1917) 23 CLR 78.

[161] [1971] HCA 57; (1971) 125 CLR 546.

[162] [1983] HCA 30; (1983) 154 CLR 326.

[163] [1990] VicRp 14; [1990] VR 146.

[164] [1999] VSCA 32; [1999] 2 VR 480.

[165] [1971] HCA 57; (1971) 125 CLR 546, at 558, quoted in Platt Nominees at 150.

[167] Platt Nominees, at 159.29-32, citations omitted.

[169] [1983] HCA 30; (1983) 154 CLR 326, at 342

[170] [1990] VicRp 14; [1990] VR 146, at 160.

[171] [1999] VSCA 32; [1999] 2 VR 480, at [87].

[174] Outline of Plaintiff's Final Submissions at [47] and [49].

[179] [1990] VicRp 14; [1990] VR 146 at 156.

[180] This is similar to the submission made by the defendants- Defendants' (Closing) Submissions at [40.a.v].

[184] Defendants (Closing) Submissions at [40.d].

[185] [2002] NSWSC 1060.

[186] [1959] 2 QB 384.

[188] (1787) 1 Cox 318; 29 ER 1184.

[189] [1913] HCA 50; (1913) 17 CLR 90.

[190] Meyers v Casey, at 123-124, cited in Black Uhlans at [170].

[192] Defendants (Closing) Submissions at [34].

[193] [1951] VicLawRp 7; [1951] VLR 49 at 51.

[194] [1975] VicRp 12; [1975] VR 129 at 132.

[196] Defendants (Closing) Submissions at [41].