Plaintiff v First Defendant

1 The plaintiff commenced this proceeding by writ filed on 20 February 2018 claiming, amongst other things, a declaration that the plaintiff has an equitable mortgage or charge over the interest of the second defendant, Katherine Anne Millar-Shannon ('Katherine') in the land situate at 29 Houghton Road, Warrandyte, Victoria ('the Land').[1] The equitable mortgage or charge secures payment of the sum of $131,627.78 to the plaintiff. In the Statement of Claim indorsed on the writ orders were also sought-

(a) directing Katherine to execute a mortgage of land in registerable form in favour of the plaintiff over her share of the property, to be discharged upon payment of the sum claimed;

(b) directing the third defendant ('Registrar') to maintain caveat no. AQ577467S on the Register maintained by him, and in particular, upon the Title of the Land, until registration of a mortgage of land in favour of the plaintiff over the property.

2 By summons filed 21 February 2018, directed to the Registrar, the plaintiff applied pursuant to s 90(2) of the Transfer of Land Act 1958 (Vic) ('TLA') for an 'injunction' directing the Registrar to maintain the caveat on the Register upon the title to the Land until registration of a mortgage in favour of the plaintiff or further order.

3 The application by summons came on before me as an urgent application on 22 February 2018.[2] The occasion for the urgency was that the Registrar had given notice to the plaintiff pursuant to s 90(1) of the TLA, informing the plaintiff that an inconsistent dealing had been lodged over the property and that its caveat would expire in 30 days' time (being Friday 23 February 2018). The inconsistent dealing was a mortgage in favour of Permanent Custodians Limited ('PCL') dated 22 January 2018[3] ('PCL Mortgage'). The PCL Mortgage secures an advance of $991,454.27 made that day to the registered proprietors of the Land, being Katherine and Damian Anderson Shannon (together 'the Shannons'). The Shannons are registered as joint proprietors as tenants in common in equal shares. The dealing lodged on behalf of PCL includes the discharge of an existing mortgage given by the Shannons to the National Australia Bank Ltd ('NAB').[4]

4 On 21 December 2017, the plaintiff lodged on the title to the Land a caveat claiming a 'freehold estate' pursuant to an agreement with the 'registered proprietor(s)' dated 12 October 2016 and prohibiting absolutely any dealing with the Land ('the Caveat').

5 When the matter came on for hearing, upon the usual undertaking as to damages being given by the plaintiff, an interim order was made directing the Registrar to delay registering any dealing with the Land until Friday 2 March 2018 at 4.15pm, or further order of the Court. PCL appeared to oppose the order and was added as the fourth defendant. Other orders were made for the filing of affidavits and submissions for a hearing on 2 March 2018.

6 At that first hearing, obvious defects in the Caveat lodged by the plaintiff were identified and discussed and the plaintiff indicated a desire to apply to amend the Caveat. I raised with the plaintiff the difficulty it faced in applying to amend the Caveat, and the decision of Menhennitt J in Midwarren Estates Pty Ltd v Retek & Stivic,[5] and the solicitor for PCL ably referred to another relevant authority.

7 The application by the plaintiff came on for hearing on 2 March 2018. PCL appeared as did the Shannons. Katherine had filed affidavits as to the first defendant's and her indebtedness to the plaintiff. The Shannons indicated they had nothing to say about the plaintiff's claim to maintain the Caveat or be granted an interlocutory injunction. They were content to abide by the Court's decision. The Registrar did not appear, although was clearly served. Further affidavits and outlines of submissions were filed in accordance with the directions made on 22 February 2018.

8 In the plaintiff's written outline of submissions, which was delivered on 27 February 2018, well before the hearing, the focus of the application was swung away from maintenance of the Caveat to what Counsel described as the 'true matter that governs the case at hand', namely that the plaintiff has the earlier equitable interest in time, and is not guilty of any unconscionable conduct such as to warrant the postponement of its interest. The plaintiff, in its Outline, flagged that its application was now to protect its equitable mortgage by an interlocutory injunction 'and the summons should be amended to permit the invocation of the Court's equitable jurisdiction so that this priority contest can be decided in accordance with principle rather than on a technicality'.[6]

9 The plaintiff had initially indicated that it desired to amend the Caveat so as to properly limit it to a claim for an equitable mortgage over Katherine's interest in the Land alone. Despite the earlier decision in Midwarren Estates Pty Ltd v Retek & Stivic[7] which held to the contrary, the modern case law suggests that the interest or estate claimed in a caveat can probably be amended under s 90(3) of the TLA, and the similarity in terms between s 90(3) and s 90(2) suggests that the same outcome would apply in respect of the latter provision.[8]

10 It is fair to say that although the authorities do not all exclude the possibility of an amendment of the estate or interest claimed in the land, they make it tolerably clear that such an amendment may only be made in 'special or exceptional circumstances'.[9] However, the authorities on whether or not an amendment may be made to a caveat upon an application for removal of the caveat, are not entirely consistent.[10]

11 In these circumstances, the plaintiff abandoned any application to amend the Caveat, and relied on its foreshadowed application for an interlocutory injunction to protect its prior equitable mortgage against defeat by the registration of the mortgage to PCL, which would on registration be indefeasible as against the plaintiff.

12 The plaintiff submitted that the caveat procedure is essentially a statutory injunction that is granted upon consideration of the same factors as are applied when granting interlocutory injunctions in equity.[11] Given that the plaintiff's equitable mortgage is first in time and otherwise has priority, its interest ought not be destroyed or jeopardised merely because the relief sought in the summons was confined to an injunction under s 90(2). A commercial court ought to give effect to the substance of the parties' rights over formal or procedural matters. Amendment of the summons would plainly be preferable to the destruction or jeopardy of an equitable interest that stands (at the least) a strong chance of achieving priority at trial.

13 PCL submitted that the Caveat should be allowed to lapse or be removed. It opposed any amendment of the plaintiff's summons to claim an interlocutory injunction to protect its prior equitable mortgage against defeat by the registration of the mortgage to PCL.

14 Having regard to the fact that the plaintiff's application to amend its summons to claim an interlocutory injunction in lieu of an amendment of the Caveat was only foreshadowed in the plaintiff's outline of submissions, and no actual application by summons was advanced, I gave PCL the opportunity to adjourn the application so as to enable it to prepare properly to meet the application. Counsel for PCL declined the invitation and stated that he wished to proceed to meet the amended application then and there.

15 By a written agreement dated 12 October 2016, the plaintiff leased certain equipment to the first defendant ('Lease').[12] The Lease was guaranteed by Katherine (who is the first defendant's director) by way of a signed instrument of guarantee and indemnity ('Guarantee').[13] By clause 2 of the Guarantee, Katherine guaranteed the first defendant's obligations under the Lease in the usual terms. Clause 3.1(a) of the Guarantee relevantly provided: '...the guarantor hereby mortgages in favour of the (Plaintiff) all the guarantor's right title and interest in (i) the real property described above as Security Property'. The Land was described in the Guarantee as the 'Security Property'. Clause 3.1(c) of the Guarantee provides that the mortgage would contain the terms in memorandum no. Q8600000 filed at the New South Wales Department of Lands. It was further agreed in clause 4.1 that Katherine would on request execute a registerable mortgage 'incorporating the covenants and provisions referred to in clause 3.1'.

16 On 12 December 2017, the first defendant defaulted under the Lease, and the plaintiff served notices on the first defendant and Katherine calling for payment of the outstanding sum of $131,627.78.[14] The Caveat was lodged and recorded on 21 December 2017.[15]

17 On 7 January 2018, PCL entered into a loan agreement with the Shannons ('the Loan Agreement').[16] The Loan Agreement included a term which stated, relevantly:

[The fourth defendant] reserve[s] the right to withdraw from this transaction...if anything occurs prior to the settlement date which in our opinion makes settlement undesirable...Our obligations under this loan agreement only arise if and when we lend you the loan amount.[17]

18 On 22 January 2018, PCL advanced the funds due under the Loan Agreement by paying $700,200.00 to the existing mortgagee NAB, and $270,863.40 to the Shannons.[18] That is, there was a settlement of the transaction. Permanent Custodian's Mortgage was lodged for registration on 22 January 2018 together with a discharge of NAB's mortgage.[19] Before the settlement, PCL's solicitor did not undertake a title search of the Land to see whether any caveats had been lodged, and instead relied upon a title search conducted by an affiliate of PCL on 6 December 2017.[20] That search did not reveal the Caveat's existence.

19 On 23 January 2018, the plaintiff received a notice under s 90(1) of the TLA informing it that an inconsistent interest had been lodged at the Land Registry.[21] The present proceeding was instituted within the requisite 30 day period provided for in s 90(2) of the TLA.

20 It was not disputed by the defendants that notwithstanding that the plaintiff's mortgage is not in registerable form,[22] the plaintiff is entitled to an unregistered proprietary interest over Katherine's share of the Land that was capable of supporting a caveat.[23] In the context of the TLA, unregistered mortgages are properly classified as equitable proprietary interests.[24] Thus, whilst PCL's mortgage remains unregistered it is an agreement to mortgage. The contest between the plaintiff's equitable mortgage and PCL's equitable mortgage is a contest between two equitable interests in the Land.

21 The law as to competition between competing equitable interests in land is that the interest which is first in time will prevail (qui prior tempore potior jure est), but that may change where the prior equitable interest holder has acted in such a way that it would be unconscionable if his interest were to prevail over the subsequent interest holder.[25] Mere failure by the prior equitable interest holder to lodge a caveat is not in itself sufficient to postpone their equitable interest to a subsequent equitable interest, even where the subsequent interest has been acquired bona fide and for value without notice and on faith of the title.[26]

22 The latter interest holder must show a change of position and prove detriment as a necessary element of any claim for postponement of the earlier equitable interest.[27] It is not necessary that the prior interest holder's claim be documented by an instrument in registerable form because the issue is not which document is easier to enforce or which creates the better or more effective security, but which party has the better equity.[28]

23 On the evidence presently before the Court PCL has not even attempted to demonstrate that it would be unconscionable for the plaintiff's equitable mortgage to be afforded its usual priority. In this connection, the plaintiff submitted:

(a) that it is well-established that mortgagees should conduct title searches on the day that the interest is to be acquired in order to ensure that no caveats affect the relevant title, and that a failure to do so can result in the loss of priority;[29]

(b) no check search was conducted before the settlement;

(c) any claim by PCL to priority is therefore unsustainable;

(d) the outcome may have been different if PCL had conducted a further search shortly before (but not on the day of) settlement, and the Caveat had been lodged in that short intervening period. However, this is not what occurred;

(e) the delay between the title search on 6 December 2017 and the advance of the funds on 22 January 2018 was extensive. Any competent property lawyer or financier would have understood that a caveat might have been lodged in an intervening period that spanned nearly two months;

(f) in the circumstances, by not carrying out a final search PCL and its representatives plainly elected to assume the risk that rival interest would be recorded on title in that period;

(g) as to the plaintiff's conduct in delaying lodgement of a caveat until 21 December 2017, that conduct is explicable. The lodgement of the Caveat occurred promptly after default under the Lease and Guarantee.[30] The plaintiff's equitable mortgage is a collateral security given in the context of an equipment leasing transaction with a trading corporation. It was not an ordinary home loan mortgage granted to an institutional lender;

(h) in such circumstances, it is understandable that a finance company would forebear from lodging a caveat until enforcement action was underway;

(i) the truth is that the plaintiff did lodge the Caveat five weeks in advance of the settlement of PCL's Loan Agreement, and it should not lose its priority merely because PCL's lawyer failed to adhere to basic lending practices by conducting a final title search.

24 The plaintiff submitted that the above analysis of the priority between the equitable mortgages is not affected by the defective drafting of the Caveat. On its own evidence, PCL relied on a title search that was nearly two months out of date. It was unaware of the Caveat at the time the loan proceeds were disbursed on 22 January 2018. As such, it could not have been misled by any error in the drafting of the Caveat. Assuming that PCL had conducted a final search, it would have been notified by the Caveat that a third party was claiming a freehold estate in the security property - an interest that could plainly have interfered with its mortgage. As such, whilst the Caveat displays an error in its drafting, PCL could not rationally argue that the error could have affected its position.

25 Finally, the plaintiff submitted that PCL has not proven that it will suffer detriment if its mortgage is found to rank after the plaintiff's equitable mortgage. The Duke Affidavit exhibits a valuation which suggests that the market value of the Property is $1.3 million, a sum sufficient to cover all monies secured against it.[31] Detriment is a necessary element that PCL must substantiate in order to mount a successful postponement argument, and it has not discharged its burden at this stage of the proceeding.

26 All of these factors lead to the conclusion that there is a prima facie case that the plaintiff's equitable mortgage has priority over PCL's equitable mortgage. The plaintiff submitted that priority should be protected by an interlocutory injunction until the matter is heard and determined. No prejudice to third parties has been suggested to follow (or could logically follow) from this course, as the Caveat already claims a similar interest that gives fair warning to the general public that the Land is affected by a substantial claim.

27 There was no substantive argument by PCL to refute the submission that prima facie the plaintiff's equitable mortgage has priority over PCL's equitable mortgage. Counsel for PCL contended, however, that there is no authority to support the grant of an interlocutory injunction where the application was one made under s 90(2) of the TLA, just as there was no basis for the Court to grant an interlocutory injunction to preserve the status quo where an application was made pursuant to s 90(3) of the TLA to remove a caveat that is defective, as the Caveat undoubtedly is in this case.

28 Counsel for PCL referred to the principles applicable to the removal of caveats under s 90(3), it being evident that an application under s 90(2) is the 'flipside' of an application for the removal of a caveat.

29 It is well established that an application under s 90(3) of the TLA is in the nature of a summary procedure and analogous to the determination of interlocutory injunctions. The burden is on the caveator to establish that there is a serious question to be tried that it does have the estate or interest in land as claimed. If the caveator establishes a serious question to be tried in relation to the estate or interest claimed in the caveat, the caveator must further establish that the balance of convenience favours the maintenance of the caveat until trial.[32] This approach, although only generally stated here, has been accepted as the correct approach in applications to remove caveats by the Court of Appeal.[33]

30 In an application under s 90(2) of the TLA, the same burden rests on the caveator if it is to maintain the caveat and delay the registration of the inconsistent dealing that provoked the notice by the Registrar under s 90(1) of the TLA. PCL submitted that it would constitute a radical change from the way in which applications for the maintenance or removal of caveats were dealt with to permit such a proceeding to be turned into an application for an interlocutory injunction.

31 Counsel for PCL illustrated the plaintiff's difficulty in seeking to restrain by injunction the registration of the dealing by reference to the restrictions on the power to amend the Caveat, to which I have referred. In particular he pointed out that the authorities, summarised by John Dixon J in Y_amine v Mazloum_[34] show that where, as would be the case here, an amendment seeks not just to amend the grounds of claim or the scope of protection but also seeks to amend the interest claimed, it effectively results in the substitution of a different caveatable interest to that advanced by the caveator and will not usually be permitted. To substitute a claim to a freehold estate in respect of the registered interests of both proprietors of the Land with a claim to interest under an equitable mortgage granted by just one of the proprietors would be to substitute a new caveat. Substantially, the whole caveat has to be amended. In reality it would be withdrawn and replaced.[35]

32 Apart from this submission, PCL did not dispute that there is a prima facie case[36] that the plaintiff has an equitable mortgage over Katherine's interest in the Land,[37] and proceeded to address the balance of convenience, or justice, applicable to show that no interlocutory injunction should be granted. PCL also submitted that there was doubt as to whether the plaintiff could satisfy the undertaking as to damages required to be given as a condition of any interim injunction. This was a matter that was raised at the time of the interim order made on 22 February 2018, and I ordered on that day that the plaintiff file and serve affidavit evidence as to its ability, or that of any holding company, to satisfy the undertaking as to damages.

33 It seems to me to be clear that the plaintiff has demonstrated a prima facie case that there is a high probability, approaching a certainty, on the evidence before the court that the plaintiff will be found to have the asserted equitable mortgage.[38] There is also a probability that the plaintiff's equitable mortgage will prevail over PCL's equitable mortgage. Whether the prima facie priority of the plaintiff's equitable mortgage, in respect of which final relief is sought, will justify the restraint sought will depend on:[39]

(a) the practical consequences likely to flow from the interlocutory order sought;

(b) whether the injury which the plaintiff is likely to suffer if the injunction is not granted is one for which damages will not provide an adequate remedy;

(c) whether the balance of convenience favours the granting of an injunction. As John Dixon J explained in Weisheit v State of Victoria:[40]

The balance of convenience requires a consideration of the relevant matters favouring or militating against the granting of an injunction and will necessarily involve a consideration of the strength of the plaintiff's claim assuming that a serious issue has been identified. In Victoria, the decision of the Court of Appeal in Bradto Pty Ltd v Victoria[41] further clarified this consideration. The court must, in determining whether to grant an interlocutory injunction, 'take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial'.[42]

(d) whether other discretionary considerations militate against the grant of the injunction.

34 In my view, there is no substance in PCL's submission that where the application was one originally made under s 90(2) of the TLA, there was no basis for the court to grant an interlocutory injunction. What the plaintiff sets out to do is amend its application so as to claim an interlocutory injunction to preserve the status quo. It is a discrete application of which notice was given, albeit by way of the outline of submissions rather than a formal application by summons. PCL has declined the opportunity to adjourn the application to give it time to propound further submissions on the facts or the law.

35 I agree with the plaintiff's submission that the caveat procedure is essentially a statutory injunction that is granted upon consideration of the same factors as are applied when granting interlocutory injunctions in equity.[43] Given that the plaintiff's equitable mortgage is first in time and that at this stage there is a prima facie case that it has priority over the PCL's equitable mortgage, then the plaintiff's interest ought not be destroyed or jeopardised merely because the relief sought in the summons was confined to an injunction under s 90(2). This Court ought to give effect to the substance of the parties' rights over formal or procedural matters. To do otherwise, as the plaintiff submits, would elevate form over substance.

36 Amending the plaintiff's summons is to be preferred to jeopardising the plaintiff's equitable interest that stands (at the least) a fair, perhaps a strong, chance of achieving priority at trial.

37 PCL submitted that damages are an adequate remedy for the plaintiff. In the context of a priority dispute, this submission is surprising. The only possibility for a claim for damages is against Katherine. Although the test may now be whether it would be more just to grant an injunction than to leave the plaintiff to pursue an award of damages,[44] there remains a tendency not to regard damages as an adequate remedy for prospective injury to property of the plaintiff.[45] Here the plaintiff has, pretty clearly, an equitable mortgage, which is property in the relevant sense. In light of the decision by the plaintiff that it will not seek to amend the Caveat, it must lapse or be removed. Absent the grant of interlocutory relief the plaintiff will be put back behind the equitable mortgage of PCL, a position that may, but not must, secure its outstanding secured liability.

38 I do not see how the Court, on the present material, could come to a conclusion that damages against Katherine are an adequate remedy where the plaintiff has a prima facie interest in the only property she is known to own. I reject the submission that damages are an adequate remedy.

39 PCL submitted that the balance of convenience favoured denying any interlocutory injunction, for the following reasons:

(a) the plaintiff has security over the leased equipment, whereas the Land is PCL's only security and arrangements are being made by Katherine to return the leased equipment;

(b) the plaintiff would still be able to lodge a caveat or mortgage behind PCL in relation to Katherine's interest in the Land, which on the current valuation would provide adequate security for both PCL's equitable mortgage and the plaintiff's equitable mortgage;[46]

(c) the quantum of the plaintiff's claim is disputed by Katherine and may involve a penalty, but there is no issue as to the amount advanced by PCL;

(d) Bluestone Servicing Pty Ltd ('Bluestone') is PCL's Mortgage Manager. Bluestone 'originates' each loan secured by a mortgage granted to PCL and it is placed into a securitised portfolio of mortgages when confirmation is received that a first ranking mortgage of land has been registered to secure the applicable loan. Thus the loan cannot be placed into a securitised portfolio unless and until registration of PCL's mortgage. The costs of funding a loan that is not in a securitised portfolio is substantially higher than a loan that is in a securitised portfolio;[47]

(e) the amount advanced by PCL ($991,454.00) vastly exceeds the amount actually paid by the plaintiff to purchase the equipment it leased to Katherine (which, it should be inferred, was less than the sum of $131,627.00 currently claimed by the plaintiff); and

(f) there are serious concerns regarding the plaintiff's ability to satisfy any undertaking as to damages.

40 In relation to the security over the leased equipment, this merely emphasises that the plaintiff's equitable mortgage is a collateral security. It is nonetheless a perfectly good security, on the material before me. Why should that security's prima facie priority over the PCL mortgage be put back because the plaintiff has other security? That fact does not diminish the security the plaintiff has and this argument is, in my view, without merit.

41 Whether the plaintiff would be able to lodge another caveat, taking priority after PCL's registered mortgage (properly claiming an interest as equitable mortgagee in respect of the proprietary interest Katherine has in the Land) is at this point entirely hypothetical. I have no up to date evidence of the state of the title to the Land. The latest search in evidence is dated 26 February 2018.[48] What might have happened since is unknown. The submission that the security is adequate to satisfy both secured amounts applies equally to PCL, and is entirely neutral as far as the balance of justice is concerned.

42 The disputes concerning the quantum of the liability of Katherine to the plaintiff are, in my view, beside the point. It is all a matter of argument, indeed speculation, at this stage. The quantum of the liability is a matter for trial and this matter is not significant to the balance of justice.

43 The bare fact that PCL's mortgage is, upon registration, to be bundled into a securitised portfolio of mortgages and that there is conclusory evidence that the costs of funding a loan that is not in a securitised portfolio is substantially higher than a loan that is in a securitised portfolio, is once again a matter of the relative quantum of the losses likely to be suffered by the competing equitable mortgagees. The evidence is not in such a state that it is possible to assess the impact of the inability of PCL to securitise the mortgage. If the plaintiff's submission on the facts as presently known turns out to be right, that loss will be equally attributable to the failure of PCL to undertake a check search immediately prior to settlement of the Loan Agreement and mortgage between PCL and the Shannons. I therefore do not consider that this argument makes any difference to the balance of justice.

44 In relation to the relative amounts secured by the two equitable mortgages, the amount due under each security is not the most material factor. It is the fact of a proprietary interest in the Land that is significant. If the quantum of the secured amounts is material, the difference is not so great. It was common ground that PCL was entitled by subrogation to the rights of the present registered mortgagee, NAB, whose mortgage PCL has paid out. This amounted to some $700,200.00. This gives PCL priority in respect of the bulk of its loan to the Shannons and leaves the value of the respective equitable mortgages as about $130,000.00 covered by the plaintiff's equitable mortgage[49] and about $271,000.00 secured by PCL equitable mortgage.

45 Accordingly, the disparity between the quantum secured under each equitable mortgage is not significant in the determination of the balance of justice.

46 There is a relationship between the strength of the plaintiff's case in establishing a serious question to be tried and the extent to which the plaintiff must establish that the balance of convenience favours the grant of the injunction. The stronger the case in establishing a serious question, the more readily the balance of convenience might be satisfied. It is sufficient that the plaintiff show a sufficient likelihood of success that in the circumstances justifies the practical effect which the injunction will have on the ability of the registered proprietors, and those taking under them, to deal with their respective interests in the Land in accordance with their normal proprietary rights.[50]

47 Here the case made by the plaintiff for the existence of its equitable mortgage is overwhelming and unchallenged, and the case for its priority over the equitable mortgage of PCL is also substantial. As Lush J said in Slater Walker Superannuation Pty Ltd v Great Boulder Gold Mines Ltd:[51]

The weight to be given to the various considerations shown by the authorities to be relevant will vary from case to case. All the authorities say in one way or another that the plaintiff must show he has a chance of success before he will be granted an interlocutory injunction. The authorities refer to the use of the injunction for the purpose of maintaining the status quo or maintaining a state of affairs which is on the balance of convenience appropriate to be maintained until trial. They refer to avoiding irreparable harm to the plaintiff. There will be situations in which the plaintiff cannot expect to be granted an injunction unless he can show that he can prove positively the existence of his rights and the infringement of them. There will be other situations in which though the plaintiff's proof of his rights or the infringement of them is not strong, an injunction may be granted because to withhold it would do the plaintiff irreparable harm, while to grant it would not greatly injure the defendant. The possible variety of situations is unlimited.[52]

48 For the reasons advanced above, in my view the strength of the plaintiff's case as presently disclosed in the evidence is such that the balance of convenience is relatively more readily satisfied. The grant of an injunction until trial is the course that appears to carry the lower risk of injustice if it should turn out to have been wrong.

49 PCL contends that the plaintiff's financial resources are inadequate to ensure protection for PCL, or so uncertain as to lead to a substantial doubt whether PCL will be protected by the plaintiff's undertaking. At the first hearing on 22 February 2018, PCL produced a Company search of the plaintiff showing it has a paid up capital of $5.00 and had a winding up application dismissed in 2011. That resulted in the plaintiff being required to substantiate its assets. This it has done by producing its audited financial report for the 2017 financial year.[53] It shows a profit earned of $979,811.00 for that year compared with a loss for the 2016 financial year of ($732,584.00). The increase in profit and, no doubt earnings, is said to be mainly due to the company taking over as principal the operations of the TL Rentals Partnership from 1 March 2016. In the result the 2017 and the 2016 financial years are not comparable. Other factors explaining the difference include increased operations during the year.

50 The Statement of Financial Position (balance sheet) reveals total liabilities are $70,301,299.00 against total assets of $68,885,034.00, a negative equity of $1,416,265.00. The financial statements are prepared on a going concern basis, notwithstanding this net asset deficiency, as the directors note that there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due. Significantly, the current liabilities are $21,069,353.00 of which related party liabilities are $16,045,005.00. Cash and cash equivalents are $1,707,122.00.

51 Note 8 to the Statement of Financial Position reveals that the plaintiff's ultimate parent entity is Consolidated Operations Group Limited ('COG').[54] That company provides funding to the plaintiff to facilitate its lease 'origination business'. The plaintiff and COG share the same management and advances and repayments of loans are based on management discretion. The note says that COG will not call on these loans within the next 12 months.

52 Note 18 to the Financial Statements shows that the plaintiff and BEN Leasing Portfolio Pty Limited are both a 100% subsidiaries of Hal Group Pty Limited ('Hal Group'). BEN Leasing Portfolio Pty Limited, the plaintiff and Hal Group collectively are liable to the Bendigo and Adelaide Bank Ltd under a $20 million facility guaranteed by COG. The facility is used by the plaintiff to finance equipment leases. There are interlocking guarantees and indemnities in respect of this facility. The plaintiff has also provided a limited recourse guarantee to the trustee of Secured Finance Limited ('SFL') in respect of its liability to debenture holders in SFL. The related party transactions listed under note 18 to the Financial Statements shows loans of significant size back and forth between the plaintiff and other companies, including SFL, Hal Group and BEN Leasing Portfolio Pty Ltd.

53 It can be seen from this brief summary of some elements of the Financial Statements, that the financial position of the plaintiff is intimately tied to the financial position of COG, its ultimate parent, and the related party lenders. The accounts are 8 months old. No current statement of financial position is put into evidence. The ability of the plaintiff to pay its debts as and when they fall due depends on factors within the discretion of other companies within the group and its ultimate holding company, COG. In these circumstances, there are reasonable grounds to conclude that the financial resources are sufficiently uncertain as to lead to a substantial doubt whether PCL will be protected by the plaintiff's undertaking.

54 I will therefore make it a condition of the grant of an interlocutory injunction that COG, or another company in the group of which it is the ultimate holding company, join with the plaintiff in giving the usual undertaking as to damage.

55 For the reasons set out above, I will grant the plaintiff leave to amend its summons to claim an interlocutory injunction restraining the Registrar from registering any dealing with the land described in Certificate of Title volume 10099 folio 967, being the land situated at and known as 29 Houghton Road, Warrandyte in the State of Victoria, until the hearing and determination of this proceeding, or further order. I will grant the injunction sought, but on condition that the undertaking as to damages is supported by Consolidated Operations Group Limited (or another suitable company in the group of which it is the ultimate holding company) and make directions generally, including for the removal of the Caveat and an early trial of the proceeding.

[1] Certificate of Title Volume 10099 Folio 967.

[2] A Judge of the Court having referred the hearing and determination of the proceeding to me pursuant to s 77.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).

[5] [1975] VicRp 56; [1975] VR 575, 576-7.

[6] Plaintiff's Outline of Submissions, 27 February 2018 [4].

[7] [1975] VicRp 56; [1975] VR 575.

[8] Percy & Michele Pty Ltd v Gangemi [2010] VSC 530 [101], Martorella & Anor v Innovision Developments Pty Ltd & Anor [2011] VSC 282 [65].

[9] Martorella v Innovision Developments Pty Ltd [2011] VSC 282 [66]; Ren v Shi [2012] VSC 271 [21]

[10] Percy & Michele Pty Ltd v Gangemi & Anor [2010] VSC 530 [92]; See Re The Victorian Farmers' Loan and Agency Co. Ltd. [1897] VicLawRp 117; (1897) 22 VLR 629; Midwarren Estates Pty Ltd v Retek & Stivic [1975] VicRp 56; [1975] VR 575, 576-7; Multi-Span v Portland [2001] NSWSC 696 [127]; S & D International Pty Ltd v Malhotra [2006] VSC 280.

[11] Piroshenko v Grojsman 27 VR 489 ('Piroshenko').

[12] Affidavit of Edmund Richard Keat Soon Saw sworn 20 February 2018 ('Saw Affidavit'), exhibit ES-1.

[14] Saw Affidavit [11-14], exhibits ES-3 and ES-4.

[15] Saw Affidavit [19], exhibit ES-6.

[16] Affidavit of Simon John Duke affirmed 21 February 2018 ('Duke Affidavit') [6(a)].

[17] Duke Affidavit, page 19 of exhibit SJD-1.

[19] Affidavit of Edmund Richard Keat Soon Saw sworn 27 February 2018 ('Second Saw Affidavit'), exhibit ES-10.

[21] Saw Affidavit [20], exhibit ES-7.

[22] Schmidt v 28 Myola Street Pty Ltd [2006] VSC 343; (2006) 14 VR 447 [ 21] (Warren CJ).

[23] See McMillan v Dunoon [2005] VSC 440 [30]-[35] ( Gillard J) ; Mir Bros Projects Pty Ltd v Lyons [1978] 2 NSWLR 505, 509 (Waddell J); Rolltherm Shutters Pty Ltd v Georgiou [2004] VSC 273 (Osborn J).

[24] Schmidt v 28 Myola Street Pty Ltd [2006] VSC 343; (2006) 14 VR 447 [11] (Warren CJ).

[25] Jacobs v. Platt Nominees Pty Ltd [1990] VicRp 14; [1990] VR 146, 153; Mimi v. Millenium Developments Pty Ltd [2003] VSC 260 [23] ('Mimi').

[26] J & H Just (Holdings) Pty Ltd v. Bank of New South Wales [1971] HCA 57; (1971) 125 CLR 546, 554; Mimi [2003] VSC 260 [24].

[27] [2010] VSC 388 [190]. See also Mimi v [2003] VSC 260 [32] and Jacobs v Platt Nominees Pty Ltd [1990] VicRp 14; [1990] VR 146, 153.

[28] Moffett v Dillon [1999] VSCA 32; [1999] 2 VR 480.

[29] Drulroad Pty Ltd v Gibson [1993] NSW ConvR 55-637; Bamford v Loy (1981) 2 BPR 9404.

[31] Duke Affidavit, exhibit SJD-1, pages 3-12.

[32] Sylina v Solanki [2014] VSC 2 [43] (Elliott J); Percy & Michele Pty Ltd v Gangemi [2010] VSC 530, [38]-[48] (Macaulay J); Piroshenko (2010) 27 VR 489, [7]-[11], [13]-[20] (Warren CJ) ('Piroshenko'); Schmidt v 28 Myola St [2006] VSC 343; (2006) 14 VR 447, 457 [32] (Warren CJ); Goldstraw v Goldstraw [2002] VSC 491 [30] (Dodds-Streeton J).

[33] 63 Buckley Street Pty Ltd v Keeron Nominees Pty Ltd [2011] VSCA 289 [11]; Carbon Black Lab Pty Ltd v Launer [2015] VSCA 126 [35]-[36]; Lawrence & Hanson Group Pty Ltd v Young [2017] VSCA 172 [38].

[34] [2017] VSC 601 [34]-[37].

[35] Compare the observations of John Dixon J in Yamine v Mazloum, supra, at [35].

[36] This is the proper characterisation of the 'serious question to be tried' leg of the test for an interlocutory injunction Piroshenko 27 VR 489 [15]-[18].

[37] PCL did, of course, submit that the plaintiff could not establish a prima facie case that it has the interest claimed in the Caveat.

[38] In the sense explained by the High Court in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 (Gleeson CJ and Crennan J) 68 [19], 81-87 [65]-[83] (Gummow and Hayne JJ). See also Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618 and Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, 216-218 [8]-[13].

[39] Weisheit v State of Victoria [2016] VSC 64 [36].

[40] [2016] VSC 64 [36(c)].

[41] [2006] VSCA 89; (2006) 15 VR 65.

[42] Bradto Pty Ltd v Victoria [2006] VSCA 89; (2006) 15 VR 65; Tymbook Pty Ltd v Victoria [2006] VSCA 89; (2006) 15 VR 65 [35]. See also Magna Alloys and Research Pty Ltd v Coffey [1981] VicRp 3; [1981] VR 23.

[44] See I.C.F. Spry, The principles of equitable remedies : specific performance, injunctions, rectification and equitable damages (Lawbook Co., 9th ed, 2010) 396 and footnote 2.

[46] PCL produced a 'valuation and assessment' of the Land showing a market value of $1,300,000 as at 7 December 2017: Duke Affidavit, exhibit SJD-1, page 3.

[48] Affidavit of Katherine Millar-Shannon sworn 1 March 2018, exhibit KM-2.

[49] Subject to claims by the Shannons to payments made since that figure was calculated and the sale value of the leased chattels.

[50] See Sylina v Solanki [2014] VSC 2 [43].

[51] [1979] VicRp 13; [1979] VR 107, 110.

[52] Cited with approval in Magna Allows & Research Pty Ltd v Coffey [1981] VicRp 3; [1981] VR 23, 28; Dataforce Pty Ltd v Brambles Holdings Ltd [1988] VicRp 73; [1988] VR 771, 775.

[53] Affidavit of Mauricio Eduardo Cordoba sworn 27 February 2018, exhibit MEC-2.

[54] Note 18 reveals that COG is a public company listed on the Australian Stock Exchange.