MATTER : Section 138 of the Transfer of Land Act 1893 (WA) (as amended)

BETWEEN : WESTERN AUSTRALIAN REAL ESTATE CUSTODIAN LTD (ACN 069 896 966)

Property law - Caveats - Application for removal of caveat - Claim by unit holder under a trust deed to a proprietary estate or interest in land forming part of the trust fund - Whether any such estate or interest was extinguished by the exercise of a power of sale - Whether there was a valid exercise of the power of sale - Caveator held to have a sufficient and continuing interest in the land - Caveat extended

Transfer of Land Act 1893 (WA), s 138, s 138B, s 138C

Bonini v Western Australian Real Estate Custodian Ltd [2001] WASC 258

Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78

Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178

City of London Building Society v Flegg [1987] UKHL 6; [1988] AC 54

Cowan v Scargill [1985] Ch 270

Green & Ors v Wilden Pty Ltd & Ors [2005] WASC 83

Hughan v Gray [2002] WASC 164

Jandric v Jandric [1999] WASC 22

Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449

Speight v Gaunt (1883) 9 AC 1

1 The plaintiffs, Western Australian Real Estate Custodian Ltd and Tace Pty Ltd, have applied for orders pursuant to s 138 of the Transfer of Land Act 1893 (WA) requiring the first defendant, W J Green & Co (1984) Pty Ltd, to show cause why its caveat number J187153C registered against certain land in which the plaintiffs have an interest should not be removed.

2 Section 138 of the Transfer of Land Act provides that any proprietor of land affected by a caveat may, if he think fit, summon the caveator to attend before the Supreme Court to show cause why such caveat should not be removed. In the present case, the application for removal of the subject caveat is opposed by the first defendant.

3 The application for removal is supported by the affidavits of Sydney James Chesson sworn 26 October and 2 November 2006. The first defendant relies upon the affidavits of Annabelle Helen Hughes sworn 1 November and 4 December 2006. The Registrar of Titles, as second defendant, was not represented at the hearing and I understand that he will abide any ruling made by the Court.

4 The application arises out of a long running and complicated dispute between the parties which was the subject of my judgment in Green & Ors v Wilden Pty Ltd & Ors [2005] WASC 83. I will henceforth refer to the litigation in question as the "consolidated proceedings".

5 I understand that the judgment in the consolidated proceedings is on its way to the Court of Appeal. Counsel at the hearing before me concerning the caveat issue were involved in the earlier litigation and referred to it during the course of the hearing. Accordingly, in setting the scene for the issues before me, I will draw not only upon the affidavits before me but also upon the narrative and findings in the consolidated proceedings.

6 For ease of reference and for the sake of consistency with the earlier judgment, I will refer to the first defendant as the "Green parties" unless the context requires a more specific reference to the first defendant.

7 More than 15 years ago the Green parties invested in three unit trust projects initiated by Mr Chesson involving the acquisition of suburban shopping centres. These events led to various controversies concerning the management of the so-called Balga/Wilden Trust, the Summerfield/Tace Trust and the Kelmscott/Magenta Trust. Mr Chesson played a central role in the management of the three Trust entities and, in doing so, was obliged to take account of the provisions of the relevant trust deeds which were in a common form. The caveat issue presently before me concerns the Summerfield/Tace Trust which is governed by a trust deed in the common form undated but stamped on 4 July 1987 ("the Tace Trust Deed").

8 The consolidated proceedings concluded with findings that the repurchase procedure allowed for by the common form trust deed, which would have led to the Green parties disposing of their units in each Trust, had been mismanaged with the result that the process had to be reactivated. It was in that context that I made orders restraining the trustees from dealing with the assets of the Trusts until the repurchase procedure had been commenced afresh and completed. At a later stage orders were made for a stay pending the finalisation of the appeal.

9 As to the issues concerning the Summerfield/Tace Trust I found that Tace was in breach of its duties as a trustee company in asserting, and continuing to assert, that a price for the subject units held by the Green parties had been determined in accordance with the relevant provisions of the trust deed concerning repurchase. It was held also that the protective provisions in cl 13.4 and s 75 of the Trustees Act 1962 (WA) did not excuse the trustee from liability or provide a basis for resisting specific performance of the contract established by the lodgement of repurchase requests by the Green parties.

10 Additional findings were made (favourable to the trustee company) that the trustee company was not in default in respect of certain other allegations of breach of trust. Further, and in any event, it was held that Tace and the subject directors of that company were excused from liability by the protective provisions just mentioned. It was held also that the trustee company should not be removed.

11 On 31 August 2005 certain orders were made by me which were designed to maintain the status quo until the final disposition of the appeal (being appeal CACV 101 of 2005) or until further order of the Supreme Court. The orders made provision for the Green parties to be provided with information concerning the management of the Trust entities and to be allowed to attend and participate in meetings of unit holders.

12 Importantly, for present purposes, cl 1.4 of the 31 August orders provided in respect of the Summerfield/Tace Trust that the trustee company, Tace Pty Ltd (being the second plaintiff in the caveat proceedings presently before me), would give not less than 14 days written notice to the solicitors for the Green parties of any proposed dealing with any of the assets of the Trust. I will call this the "31 August cl 1.4 order". The parties were to have liberty to apply upon 3 business days notice in writing.

13 It seems that prior to the handing down of the judgment in the consolidated proceedings the land occupied by the supermarket being managed by the trustee company had been transferred to the first plaintiff in these proceedings, being a company formerly known as Western Property Investments Ltd. This is evidenced by a deed dated 12 December 1995 exhibited to the first Chesson affidavit (Ex SJC-4) which recites that pursuant to cl 12.1(22) of the trust deed Tace may permit any assets of the trust fund to be held in the name of a nominee. By cl 3 of the 1995 sub-trustee deed, the first plaintiff declared that it holds and will be registered as the proprietor of the property in question for Tace. It was common ground between the parties at the hearing before me that in its role as nominee the first plaintiff was bound by the obligations binding upon Tace. Mr Chesson is a director of the first plaintiff and continues to be involved in the management of Tace and the first plaintiff.

14 It appears from the first Chesson affidavit that the first plaintiff is the registered proprietor of the Summerfield Shopping Centre situated on the land described as Lot 4 on Diagram 52358 and being the whole of the land comprised in Certificate of Title Volume 1740 Folio 426 ("the land"). The first plaintiff holds the land in trust for Tace as sub-trustee as a consequence of the 1995 sub-trustee deed dated mentioned earlier.

15 It is said that the first defendant (in effect the Green parties) lodged the subject caveat (J187153C) against the title to the land on 18 February 2005 (that is, about five months prior to the making of the 31 August cl 1.4 order). It appears from the caveat form that the estate or interest being claimed by the first defendant as caveator is as the beneficiary of a trust against land held by a trustee for the trust. The caveat forbids the registration of any instrument affecting the estate or interest "subject to the caveator's claim". The caveat is supported by an additional page which sets out the history of the relationship between the parties and refers to the land being transferred to the first plaintiff pursuant to a deed of appointment of sub-trustee dated 12 December 1995.

16 It appears from the first Chesson affidavit that on 27 September 2006 Mr Chesson and his wife, as directors of the first plaintiff, applied for removal of the subject caveat in accordance with s 138B of the Transfer of Land Act. It was said in a supporting declaration that the first defendant was a unit holder in a Summerfield/Tace Trust but this did not entitle it to an interest in the land. It was said by Mr Chesson in his statutory declaration at [5] that:

"The land is the subject of a contract for sale which is scheduled for settlement as soon as this caveat has been removed from the title."

17 The Registrar of Titles then advised that an application to send 21 days notice cannot be lodged where the caveat is protecting the beneficiary under a Will or settlement. This led to the plaintiffs instructing their lawyers, Galic & Co, to write to the first defendant's lawyers requiring the caveat to be withdrawn. The Galic & Co letter dated 4 October 2006 reads as follows (omitting the inessential parts):

1. Western Australian Real Estate Custodian Limited (WAREC) and Tace Pty Ltd have negotiated the sale of the Summerfield Shopping Centre for the sum of $6.5 million less sinking fund ($500,000) and related expenses;

2. there is a debt owed of some $5 million plus accumulated interest to Australian Real Estate Investment Limited as trustee for the Kelmscott Central Development Trust which is required to be paid at settlement;

3. the contract is now unconditional and settlement is scheduled for next week, as soon as your client's caveat has been removed.

Please arrange to deliver to our office a duly executed withdrawal of caveat to enable the settlement of the sale to proceed.

If we do not receive you [sic] advices or the withdrawal of caveat by close of business on Friday, 6 October 2006 then we will be forced to make application to the court for an order for the removal of the caveat without further notice to you.

Please do not hesitate to contact us should you have any questions."

18 Put shortly, the stance adopted by the plaintiffs in this letter, and at the hearing before me, was that the first defendant did not have a caveatable interest in the land sufficient to support a subject to claim caveat. Further, and in any event, even if it be held that a caveatable interest existed, the broad powers allowed to Tace by the Tace Trust Deed (and thus to the first plaintiff as its sub-trustee), including an express power of sale, had an overreaching effect upon any estate or interest claimed by the Green parties. This meant that the estate or interest asserted in the caveat could not be substantiated, and the caveat should be removed.

19 By his second affidavit sworn 2 November 2006 Mr Chesson provided certain particulars bearing upon the stance adopted by the plaintiffs.

20 It is said in the second Chesson affidavit that the proprietors of Lam's Oriental Supermarket ("Lam") made an offer to purchase the land through Ron Farris Real Estate Pty Ltd on or about 22 February 2006 but the deposit of $250,000 was never paid and still has not been paid. The contract did not proceed. Exhibited to the affidavit is a true copy of the offer and acceptance in question which describes the purchase price as $6.5 million.

21 Mr Chesson went on to say in his second affidavit that Lam made an offer to lease Shop 1 at the land on 28 February 2006. A condition of the lease was that Lam have a first right of refusal to purchase the land in the event that the first plaintiff chooses to sell the land. Lam has never paid the $250,000 payable as a deposit on the lease. Nevertheless, Lam has taken possession of Shop 1 and has paid rental on the premises. There have been a number of ongoing discussions with Lam on the lease requirement for a payment of the $250,000 deposit due under the lease. During those discussions Lam have maintained that they want to purchase the land and that they would be able to arrange finance to do so.

22 It is said that on 26 September 2006 Lam presented the first plaintiff with a copy of a letter of offer from the ANZ Bank to finance the sum of $5.5 million dated 12 September 2006. Mr Chesson has been told that Lam is able to raise only $5.5 million from the ANZ Bank and no more by pledging all of its assets including the land and all of its other real estate assets. Lam wants the first plaintiff to pay to them at settlement the sum of $500,000 which is the sinking fund from the land. Lam therefore requires a further $500,000 in order to purchase the land and they seek a loan of that sum from the plaintiffs.

23 It is said that while the plaintiffs are not willing to advance the sum of $500,000 Australian Real Estate Investment Limited (called "AREIL") has by its common director verbally advised the plaintiffs that it is willing to do so on the basis of a second mortgage security over all of Lam's real estate assets. A second mortgage has not been prepared but Mr Chesson understands that it can be prepared in a day.

24 Mr Chesson says that the plaintiffs have at all times maintained to Lam that any sale of the land would be subject to the removal of the caveat. It is anticipated in any event that the ANZ Bank would not finance or settle the purchase of the land with the caveat in place. Lam wishes to proceed on the basis of a contract exhibited to the second Chesson affidavit (SJC-10). However, at this point in time, the first plaintiff does not consider that it is bound to proceed on that contract. It is willing to do so if the caveat is removed.

25 Mr Chesson says further that he was at all times aware of the caveat lodged by the first defendant and that that caveat would have to be removed. It was always intended that the first defendant would be provided with notice of any impending sale of the land. The plaintiffs are willing to sell the land to the Green parties for the sum of $6.5 million if the first defendant wishes to purchase the property. Otherwise, the plaintiffs wishes to proceed to sell the land to Lam.

26 It is said that the plaintiffs have provided the first defendant with notice that it has received repurchase requests from unit holders in the Summerfield Trust, Federico and Giovanna Piotto. However, the first defendant has not responded in any way to that notice. It is in the light of these circumstances that the plaintiffs seek the removal of the first defendant's caveat. The settlement agency appointed by Lam has been advising verbally that Lam and the ANZ Bank are ready, willing and able to settle the purchase of the land.

27 As at 2 November 2006 the plaintiffs received a notice from the settlement agent advising that Lam is ready, willing and able to settle the transaction.

28 The first defendant supported its opposition to the plaintiffs' application for removal of caveat by relying upon the affidavit of Annabelle Helen Hughes sworn 1 November 2006. She is a barrister and solicitor employed by the solicitors for the first defendant. Exhibited to her affidavit was an exchange of correspondence between the respective parties.

29 By letter dated 13 October 2006 the solicitors for the first defendant drew attention to the 31 August cl 1.4 order requiring that no less than 14 days written notice to the solicitors for the Green parties be given of any proposed dealing with any of the assets of the Trust. It was said that the plaintiffs had failed to comply with that order in that they had clearly sought to dispose of the land by a contract of sale negotiated in February 2006, without giving notice of this intention, and were now endeavouring to complete the settlement of the transaction.

30 By their reply dated 17 October 2006 the solicitors for the plaintiffs seemed to accept that the only "notice" of any proposed dealing was contained in the Galic & Co letter dated 4 October 2006. They went on to say that the settlement was not now proposed to take place prior to 18 October 2006 or the giving to the first defendant of 14 days notice. It was said further that the intention was to provide the first defendant with 21 days notice. However, the Department of Land Information ("DOLI") would not serve the notice due to the nature of the claim made by the first defendant. The plaintiffs' solicitors added:

"Your clients' caveat has served its purpose. Your client has been informed of the pending sale of the land. Your clients' 'subject to claim' caveat cannot survive the sale of the land as the sale would in any event extinguish the interest claimed by your client.

Our client does not intend dealing with the assets of the Trust other than to convert the real estate to cash and to pay out its debts."

31 The solicitors for the plaintiffs then went on to reiterate what had been said in the Galic & Co letter dated 4 October 2006 about the sale of the Summerfield Shopping Centre for $6.5 million (less the sinking fund of $500,000 and the sale expenses) and referred again to a debt of $5 million plus interest owed to AREIL. It was said that this came about as a result of the payment to the mortgagee to clear the debt against the land using AREIL's funds by Korda Mentha as receivers of the first plaintiff ("WAREC") and the second plaintiff ("Tace"). It was said that AREIL seeks repayment by WAREC and Tace of the $5 million plus interest. WAREC and Tace would be content to hold the land but have no other means of payment of the debt owed to AREIL. It was then said:

"If your clients' desire is that the land be retained by the Summerfield (1987) Unit Trust then we would be pleased to hear of any proposals your clients might have for the provision of the $5 million plus interest owed to AREIL."

32 The first defendant placed reliance also upon the further affidavit of Annabelle Helen Hughes sworn 4 December 2006. Exhibited to the second Hughes affidavit was a letter dated 27 November 2006 from the plaintiffs' solicitors, Galic & Co, asserting that with respect to the application for removal of the caveat there were no conflict of interests or fiduciary duty issues as the Tace Trust Deed set out the duties and obligations of the trustee. It was said also that the intended destination of the sale proceeds had been adequately explained by letter dated 10 October 2006 exhibited to Mr Chesson's first affidavit; that is, the crucial Galic & Co letter dated 4 October 2006.

33 By further letter dated 28 November 2006 (exhibited to the second Hughes' affidavit) the plaintiffs' solicitors advised that an extraordinary meeting of unit holders of the Summerfield (1987) Unit Trust was scheduled to be held on Wednesday, 13 December 2006. The meeting would consider and if thought fit pass an ordinary resolution to the effect that the trustee was authorised to sell the Summerfield Shopping Centre at the price offered by Trung Quang Lam and others of $6.5 million and allowing to the credit of the buyers the provision of $500,000 for the liability of the sinking fund, thereby providing gross proceeds of sale (before selling and settlement expenses) to the Summerfield/Tace Trust of $6 million in accordance with the contract and arrangements described in the explanatory statement to the notice of meeting.

34 The meeting was also to consider and if thought fit pass an ordinary resolution that the unit holders authorised and instructed the trustee to repay the sum of $5 million plus interest to AREIL as responsible entity for the Kelmscott Central Development Trust.

35 Further, the meeting was to consider and if thought fit pass an ordinary resolution authorising and instructing the trustee that in the event that the caveat cannot be removed and the transaction concluded with Lam within 7 days then the trustee be authorised to transfer the property to AREIL for the same price as being offered by Lam (ie $6.5 million less $500,000 sinking fund) in order to pay the debt owed to Australian Real Estate Investment Ltd in its capacity as responsible entity for the Kelmscott Central Development Trust.

36 It was said in the explanatory memorandum that the Summerfield/Tace Trust had owned the shopping centre since 1987. Action Supermarkets had quit the lease on the premises and the major tenant was now an Asian green grocer. A valuation of the shopping centre in 2004 placed a value of $4.2 million on the centre. A copy of the offer to purchase the property was attached. The contract was in a state of default by the buyer. However, the buyer was keen to proceed on the basis set out in the contract and the trustee was able to elect to ignore the defaults and proceed to settlement if it decided to do so. The ANZ as bankers for the buyer of the property obtained a valuation for finance purposes of $6.7 million based upon the buyer remaining as tenant to the property and including the sinking fund balance of $500,000 being paid to the buyer. The trustee was of the opinion that the sale of the centre at $6.5 million was in the best interests of the unit holders.

37 It was said further in the explanatory memorandum, as to the proceedings for removal of the Green caveat, that the trustee was of the view that cl 4.3 of the Tace Trust Deed whereby a unit holder was not entitled to the transfer to him of any property comprised in the trust fund did not entitle the Green parties to register a caveat on the land. It was said further that any interest the Green parties had in the property was an indirect interest and contingent upon the property remaining registered in the name of the trustee (or sub-trustee) and upon the property remaining an asset of the trust. The caveat was a "subject to claim" caveat and once the property had been sold then any interest would be expunged. However, the ANZ as bankers for the buyer of the property were not willing to settle the purchase of the property with the caveat remaining in place, despite the fact that the transfer of ownership would expunge any interest that the Green parties had in the land.

38 The explanatory memorandum also contained information bearing upon the proposed Resolution 4 concerning the payment of debt to AREIL as responsible entity for the Kelmscott Central Development Trust. The information provided was as follows:

"INTRODUCTION

Unitholders are aware that the Kelmscott Village Shopping Centre was held by Western Australian Real Estate Custodian Limited (WAREC) in its capacity as custodian for the Kelmscott Central Development Trust (KCDT) and that the Summerfield Shopping Centre is held by WAREC as Sub-trustee/custodian for the Summerfield (1987) Unit Trust (SFUT). The properties were subject to a common mortgage to National Mutual Funds Management Limited (AXA) as a subsidiary of AXA. The combined debt was $9,964,000 which was split in the books of the trusts equally at $4,982,000 in each of KCDT and SFUT.

There was further debt funded by AXA in respect of some of the properties but not all of the properties owned by KCDT which were adjacent to the Kelmscott Village Shopping Centre. The approximate debt in respect of the other properties was $1.5 million under 3 separate mortgages which AXA claimed were cross collateralised with the KCDT and SFUT mortgage.

AXA required its money repaid firstly in respect of Summerfield. A valuation was carried out by Burgess Rawson on instructions from AXA which placed a value of $5.2 million on Summerfield. There was no immediate buyer for the shopping centre at that time and no other financier was interested in financing the property due to the short term of lease left for Action and the fact that Action made no secret of their intention to vacate the premises at the end of the current term of their lease and that Action were not going to exercise their option for renewal.

In addition to the situation with Summerfield, the KCDT failed in its attempt to win approval for a major redevelopment of the Kelmscott Shopping Centre and the surrounding properties. Burgess Rawson valued the Kelmscott Village Shopping Centre at $9.75 million in September 2003.

AXA appointed Brian McMaster of Korda Mentha as receiver of the mortgages over the Summerfield and the Kelmscott properties in July 2004. He called for tenders for the purchase of Kelmscott Village, Summerfield and the other properties under mortgage to AXA.

A sale of the Kelmscott Village Shopping Centre was accepted at $12.5 million.

Brian McMaster used the proceeds of the sale of Kelmscott Village to pay out the entirety of the mortgages over all of the properties - thereby leaving the properties surrounding Kelmscott Village and Summerfield free of debt. The use of the KCDT funds to pay out the Summerfield debt entitled KCDT to a subrogation of the mortgage of Summerfield or to a new mortgage. Brian McMaster did not do so with Summerfield because he considered that there was sufficient security as a result of the ownership of Summerfield being held in the name of WAREC which was also a sub-trustee/custodian of the KCDT.

The debt of $4,982,000 grew with costs to exceed $5,000,000 by the time it was paid out with the funds from KCDT because Mr McMasters did not pay any interest payments due on the mortgage during the time that he was acting as receiver of the properties. Since the discharge of mortgage in March 2005 interest has been accruing on the debt of Summerfield to KCDT.

The trustee considers that the debt is due and payable to KCDT together with any accrued interest on the debt.

DIRECTION OF PROXIES

Any proxies that are given to the Chairman will be voted for the payment of the debt to KCDT.

INFORMATION ON THE RELATIONSHIPS BETWEEN SFUT AND KCDT

KCDT was informed to develop the Kelmscott Village and surrounding properties. The main unitholder in KCDT is the Kelmscott Village (1988) Unit Trust.

Each of the unitholders of the SFUT has an indirect interest in KCDT by virtue of their interest in KVUT.

The trustee does not consider there to be any conflicts of interest in the relationships between the trusts"

39 The second Hughes' affidavit exhibited also a letter dated 1 December 2006 from Galic & Co to the first defendant's solicitors enclosing a notice of intention to sell the Summerfield Shopping Centre dated 30 November 2006. This notice was to the effect that Tace was giving notice that it intended to instruct the sub-trustee to enter into an unconditional contract to sell the land to Lam and others for a net price of $6 million before selling and settlement expenses. I note in passing that this notice seems to be setting the scene for the constitution of an entirely new contract of sale (of which 14 days notice has been given in purported compliance with the 31 August cl 1.4 order). In other words, the author of the notice seems to contemplate that if the events and arrangements referred to above are held not sufficient to justify the removal of the Green caveat, then the new contract will be used as a basis for removal.

40 The plaintiffs' submissions in respect of the removal of Green caveat issue are to this effect.

41 Tace was not ordered to be removed as trustee at the conclusion of the consolidated proceedings. Accordingly, Tace should be left to administer the Summerfield/Tace Trust and its discretion should not be interfered with. Tace has offered to sell the Summerfield Shopping Centre to the Green parties at the same price as it proposes to sell the property to the intended purchaser. The first defendant's caveat is a subject to claim caveat only and not an absolute caveat which would prevent any dealings as against the title. The first defendant's interest in the land is contingent upon the retention of the land by Tace as trustee. If the trust has no further interest in the property, by virtue of there having been a valid exercise of the power of sale, then the first defendant can have no further (contingent) interest in the land.

42 It was said further that at the very least the prerequisite for any defendant showing cause why a caveat should not be removed must entail showing that there exists a caveatable interest capable of protection. It is clear that no such interest exists here as the power of sale has been exercised. The first defendant no longer has any caveatable interest in the land. Its interest is in the proceeds of sale which would become part of the trust fund. The first defendant does not however have an interest in the property itself. Reliance was placed upon the decision of Pullin J in Bonini v Western Australian Real Estate Custodian Ltd [2001] WASC 258. I will look at that case in more detail later.

43 The stance of the first defendant is that Tace as trustee (and therefore the first plaintiff as the registered proprietor of the land) failed to identify the power that the trustee has to effect the proposed sale. Moreover, the plaintiffs did not properly notify the first defendant of any proposed dealing in the assets of the Trust in compliance with the 31 August cl 1.4 court order. It is said that this bears upon the regularity and propriety of the trustee's purported exercise of a power to sell.

44 In these circumstances, the first defendant submits, the plaintiffs have failed to establish on the affidavit evidence presently before the Court a transparency in the circumstance in which the land is being sold. Furthermore, they have failed to explain in a transparent fashion the destination of the funds in circumstances where the so-called creditor is a related party. Thus, it is arguable that the power the trustee purports to exercise is not being exercised in a bona fide fashion with the interests of the beneficiaries of the Summerfield/Tace Trust as the primary objective.

45 It was put to me also that there is an ambiguity on the evidence before the Court as to whether a binding contract for the sale of the land is actually in existence. In the absence of clear evidence that a binding contract does exist then the plaintiffs are not in a position to contend (as they apparently do) that any interest of the Green parties in the land has been extinguished or ceases to exist because the land has been sold to a third party in a manner allowed for by the Tace Trust Deed. On this view of the matter, the Green parties arguably continue to have a caveatable interest in the land and the caveat should not be removed unless and until the defendants are afforded an opportunity to commence legal proceedings by writ of summons with a view to substantiating their claim at a trial of the matter.

46 It will now be useful to look at the legal principles bearing upon an application for removal of caveat made pursuant to an originating summons in the manner allowed for by s 138 and related provisions of the Transfer of Land Act.

47 The relevant principles upon which the Court is to act in regard to an application of this kind are as set out in the decision in Jandric v Jandric [1999] WASC 22. Commissioner Buss QC said this in [24] - [26]:

"24. As I have mentioned previously, the plaintiff must demonstrate on the evidence that his claim to a caveatable interest in the Land raises a serious question to be tried. If there is a serious question to be tried, the question will not, except in the most exceptional circumstances, be determined on originating summons. See Porter v McDonald [1984] WAR 271 at 276; Halse v Embling, unreported; FCt SCt of WA; Library No 970734; 22 December 1997. It is not appropriate to attempt to resolve conflicts of evidence on affidavit. See Eng Mee Yong (supra) at 341; Halse (supra) per Parker J at page 4. As Brinsden J observed in Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129 at 141:

'... the jurisdiction granted by section 138 should not be exercised so as to remove a caveat unless the case is one in which it is patently clear that the estate or interest sought to be protected cannot be made out and that degree of clarity will not emerge if there are disputed questions of fact, when the respondent should be left to proceed by way of action to establish the claimed interest or estate.'

25. Accordingly, if a caveator is able to demonstrate a reasonably arguable case as to the existence of a caveatable interest, the ordinary course is for the caveat to remain and the disputed question to be left for trial by writ of summons with pleadings. However, a caveator's claim must, in fact and law, be more than merely frivolous or vexatious, and it must appear from the evidence on the originating summons that the caveator might ultimately succeed in establishing his caveatable interest. See Halse (supra) per Parker J at page 14.

26. In my opinion, these principles, which have been developed in the context of applications under s 138 of the Act, apply to an application under s 138C."

48 I note that the approach described by Commissioner Buss QC was approved by White AUJ in Hughan v Gray [2002] WASC 164 at [13].

49 I note also that in Bonini v Western Australian Real Estate Custodian Ltd [2001] WASC 258 Pullin J had this to say at [11]:

"In proceedings under s 138B(2), to extend the operation of a caveat, the court has jurisdiction to decide whether the caveator's claim 'has or may have substance'. In most cases, the practical reasons will still require only a decision about whether the caveator's claim 'may have' substance; in other words, if the caveator has an arguable case. However, there is no longer any legal reason why, in a clear case, the court cannot finally decide that the caveator's claim 'has' substance, ie to finally decide the caveator's claim. And see Australian Security Estates Pty Ltd v Bluecrest Holdings Pty Ltd [1999] NSWSC 524, par 4."

50 It follows from these cases that I must begin by looking at the question of whether the caveator in the present case can be said to have a caveatable interest in the subject land.

51 The reasoning of Pullin J in Bonini's case (supra) is of particular interest because in that case his Honour was looking at a dispute concerning the affairs of the unit trust known as Kelmscott Village (1998) Unit Trust; that is, the Kelmscott/Magenta Trust which was one of the three Trusts in which the Green parties had an interest and which was operating pursuant to a common form trust deed, that is, a deed corresponding to the trust deed governing the affairs of the Summerfield/Tace Trust.

52 His Honour noted that by cl 3.1 of the trust deed before him that the trustee was to stand possessed of the trust fund upon trust, with and subject to the powers and provisions of the trust deed. He referred also to the following provisions:

4.3 Each Unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as an entirety but subject thereto shall not entitle a Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and no Unit Holder shall be entitled to the transfer to him of any property comprised in the Trust Fund."

12.1 (e) to vary or transpose any investments into or for any other or others of any nature whatsoever and to vary the terms of or property comprised in any security;

(f) to ... sell, transfer, convey, ... let, ... mortgage, ... or otherwise deal with any real .. property ... ."

53 His Honour noted that unit holders in the case before him had lodged a caveat forbidding registration of any instrument affecting the claimed estate until after notice of any intended dealing had been given to the caveator. The estate or interest claimed in the caveat was on the basis that the plaintiffs were "unit holders having a beneficial interest in the land through the trust fund known as the Kelmscott Village (1988) Unit Trust". His Honour then made these observations:

"13 A unit under the trust deed in question here confers a proprietary interest in all of the property which for the time being is subject to the trust of the deed. If there is a proprietary interest in the entirety, then there is a proprietary interest in each of the assets of which the entirety is composed. When Magenta Nominees Pty Ltd was the registered proprietor of the land, it held the legal estate and the unit holders had a beneficial interest in the equitable estate. See Costa & Duppe Properties Pty Ltd v Duppe [1986] VicRp 9; [1986] VR 90; Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352; and Commissioner of State Taxation v Merifield Cooksey Holdings Pty Ltd, unreported; FCt SCt of WA; Library No 940594; 31 October 1994. Clause 4.3 is similar to the clause which was found in the trust deed in the Costa v Duppe case.

14 When the first defendant became the registered proprietor, it then held the legal estate in the land and Magenta Nominees Pty Ltd held the equitable estate in the land on trust for the unit holders. The plaintiffs therefore had a proprietary interest in the equitable estate in the land held by Magenta Nominees Pty Ltd. It was noted by Fullagar J in Livingston v Commissioner of Stamp Duties (Q) [1960] HCA 94; (1960) 107 CLR 411, at 438, that to say that the plaintiffs had an interest in the equitable estate is to say something that requires explanation and analysis. The explanation in this case, as in most cases, is that the equitable interest is an interest which is held subject to the provisions of the trust deed. So, for example, the trustee of the trust has wide powers, including the power to sell real estate. If the land were sold under a valid exercise of that power, then of course the plaintiffs would no longer have any caveatable interest in the land. Their interest then would be in the proceeds of sale which would become part of the trust fund. The power of sale, however, has not been exercised and the plaintiffs do therefore have a proprietary interest in the equitable estate in the land. My conclusion is that the plaintiffs have a caveatable interest. In consequence, to use the language of s 138C, I am satisfied that the caveator's claim has substance.

15 Counsel for the first defendant argued that the caveator's claim did not have substance, but no authorities were advanced to support that argument and the only submission made was that the facts in the Costa v Duppe case were different. In my opinion, the first defendant's argument must be rejected."

54 After some further discussion, his Honour also made these observations:

"23 The first defendant argues that the existence of the caveat is commercially inconvenient. It was argued that unit holders could interfere with the operations of a trust if they all lodged caveats preventing dealings with real estate owned by the trustee on behalf of the trust. In my view, there is no substance in that complaint. In the first place, and from the practical point of view, it may be observed that the trustee has agreed to act as trustee under a trust deed which does not prohibit the lodgment [sic] of a caveat. If the trustee prefers to leave the trust deed in that form, then I do not see that it has any basis for complaint about commercial inconvenience. There is a variation power in the trust deed, and it did not have to allow the present circumstances to arise. In the second place, the balance of convenience will rarely be any justification for removal of a caveat when it is established that the plaintiffs have an equitable interest in the land. They are then entitled to protect that interest by caveat - Porter v McDonald (supra); Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, at 50.

24 I reject the first defendant's submission that I should order that the caveat be removed.

25 I am therefore disposed to make an order extending the operation of the caveat. The remaining question is about the period of time for that extension. The Chamber summons seeks an order that the operation of the caveat be extended until the plaintiffs cease to be unit holders in the Kelmscott Village (1988) Unit Trust. I do not think that I can make that order because circumstances may change. For example, as I have already mentioned, if the trustee sells the land, then the unit holders would thereafter only have an interest in the proceeds of sale and not in the property itself. I think that the only order which can be made is that the operation of the caveat be extended until further order of the Court. That is the order I will make."

55 In taking account of the observations made by Pullin J in Bonini's case (supra) I must also give weight to various legal and equitable principles bearing upon the administration and management of Trust property.

56 It is the duty of a trustee to adhere to the terms of the relevant trust deed. Other equitable rules are to be applied subject to any provisions contained in the Trust instrument itself. In addition, it is the duty of trustees to act fairly by all the beneficiaries and to keep proper accounts. A trustee should exercise the same diligence and prudence as an ordinary prudent man of business would exercise in conducting that business if it were his own subject to the circumstances of the case: Speight v Gaunt (1883) 9 AC 1 at 19.

57 It has been said that equity sets for trustees demanding standards of duty with respect to the rights of beneficiaries of the Trust. In Cowan v Scargill [1985] Ch 270 Megarry VC said at 288:

"The starting point is the duty of trustees to exercise their powers in the best interests of the present and future beneficiaries of the trust, holding the scales impartially between different classes of beneficiaries. The duty of the trustees towards their beneficiaries is paramount. They must, of course, obey the law; but subject to that, they must put the interests of their beneficiaries first. When the purpose of the trust is to provide financial benefits for the beneficiaries, as is usually the case, the best interests of the beneficiaries are normally their best financial interests."

58 The rule that trustees must adhere to the terms of the trust is set in the context of a legal regime more general than the specific terms of the trust instrument. Trustees must also adhere to the more general regime of any relevant legislation. Trustees are as much bound to exercise powers conferred upon them by statutes as powers conferred by a trust instrument. The trustee's duty of disclosure is not limited to information requested by the beneficiary. The trustee has a duty to inform all beneficiaries of their rights under the trust instrument: Ford & Lee: "Principles of the Law of Trusts" [9030] and [9120].

59 Trustees are often classified as fiduciaries upon the basis that they have undertaken to fulfil a duty in the interests of another party. Where a fiduciary fails to disclose to the beneficiary material that should have been disclosed it is no defence to say that the plaintiff would not have acted differently had the material been disclosed. The general rule is that non-disclosure will vitiate the transaction affected, however fair that transaction might have been in all other respects, and this may lead to the relevant transaction being rescinded and the parties remitted to their original position as far as possible: Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449.

60 The decided cases recognise also that a trustee must not abuse his position by making it a means of profit or benefit to himself or any third party. This means that the trustee must account for benefits or gains obtained in circumstances where there was an actual or significant possibility of a conflict between personal interest and fiduciary duties. Further, he must account for any benefit or gain obtained by reason of or by use of his fiduciary position or of the opportunity or knowledge resulting from it.

61 The equitable principle governing the liability to account is concerned not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interests by, for example, actually entering into a transaction or engagement in which the trustee has, or can have, a personal interest conflicting with the interests of those whom he is bound to protect or the actual receipt of personal benefit or gain in circumstances where such conflict exists or has existed: Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 per Deane J at 198. It has been said that a trustee who acts with the intention of benefiting persons who are not the objects of the trust may nonetheless be acting dishonestly notwithstanding that he does not intend to benefit himself: Armitage v Nurse [1998] Ch 241 at 251.

62 Before leaving this review of the relevant legal principles, I must also remind myself of the importance of the lodgement of a caveat to a caveator, being a matter touched upon by Pullin J in Bonini's case (supra).

63 It is apparent from the indefeasibility provisions of the Transfer of Land Act that the basic concept is that a person who acquires land under the Torrens system, prima facie, will be subject only to those interests he or she can discover from a search of the register. The principal exception to this concept of indefeasibility is fraud. However, it has long been held that equitable claims in interest in land are recognised under the system. The legislation provides that a caveat may be lodged by any person claiming under any unregistered instrument. The effect of the caveat is that no instrument will be registered prejudicing the caveatable interest while the caveat is in force until after notice has been given to the caveator. Thus, though a legal interest is in general conveyed by a registered transfer, and is in law subject only to registered mortgages or other charges, the register may bear on its face a notice of equitable claims, so as to warn persons dealing in respect of the land, and to enable the equitable claimant to protect his claim by enabling him to bring an action if his claim be disputed.

64 It is apparent from the reasoning in the decided cases that the effect of the provisions is not to enlarge or add to the existing proprietary rights of the caveator upon which the caveat is founded, but to protect those rights, if the caveator has any.

65 It was held in Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78 that the plaintiff by omitting to lodge a caveat in respect of his unregistered equitable interests before the defendant paid the purchase money and obtained his transfer, had lost the priority which might otherwise have been available to the plaintiff as a result of his equitable interests having been created first in point of time. In other words, the failure to lodge a caveat amounted to an omission which had the effect of inducing a claimant later in time to act to his prejudice with the result that the interest of the latter obtained priority.

66 Let me now return to the circumstances of the present case.

67 In earlier discussion I noted that the Tace Trust Deed corresponded to the common form trust deed governing the affairs of the Balga/Wilden and Kelmscott/Magenta trusts, the latter being the trust deed under notice in Bonini's case (supra). Thus, the Tace Trust Deed, which is the crucial point of reference in the present case, provides that the unit holders are entitled to the beneficial interest in the trust fund (cl 4.3); the trust fund means the initial sum in the property from time to time representing the money (cl 1); the trustee has power to buy and sell property (cl 12.6); the trustee has power to permit any asset of the trust fund to be registered in the name of any nominee (cl 12.22).

68 Pullin J held in Bonini's case that a trust deed of this kind conferred upon a unit holder a caveatable interest in land registered in the name of the trustee company upon the basis that if there is a proprietary interest in the entirety of the property representing the trust fund (as he held there was) then a unit holder had a proprietary interest in the equitable estate in the land held and used for a supermarket by the trustee company.

69 I endorse and consider that I am bound to follow this line of reasoning. Hence, I must proceed from the premise that at the time the Green caveat was lodged (that is, caveat J187153C) the first defendant had a caveatable interest in the land sufficient to support a "subject to claim" caveat of the kind actually lodged. Thus, the crucial question in the present case is whether anything has occurred subsequently which has had the effect of extinguishing or divesting the first defendant as caveator of its caveatable interest in the land.

70 The facts and matters relied upon by the plaintiffs are those adverted to by Pullin J at [14] of Bonini's case (supra) where he said that if the land were sold under a valid exercise of the trustee's power to sell, then the caveators (in that case the plaintiffs) would no longer have any caveatable interest in the land. Their interest would be in the proceeds of sale which would become part of the trust fund.

71 The observations of Pullin J can be regarded, in effect, as a reference to the doctrine of overreaching which allows land held upon trust to be sold to a purchaser free from the trust, even though he has notice of it. Although the beneficiaries lose any prospect of enjoying the land itself, they are not defrauded in any way, for they have corresponding interests in the purchase moneys. This distinguishes overreaching from an interest being overridden, that is, being void against a purchaser of a legal estate without notice, or for want of registration. In other words, if an interest is overreached, it is transferred from the land to money in the hands of the trustee; if an interest is overridden, it ceases to be an interest in any property: City of London Building Society v Flegg [1987] UKHL 6; [1988] AC 54.

72 The doctrine is supported to some extent in this State by the indefeasibility provisions of the Transfer of Land Act mentioned earlier and various provisions of the Trustees Act 1962 (WA). For example, s 28(2) of the Trustees Act provides that a purchaser of any property sold under a trust for sale or a power to sell shall not be concerned to inquire whether the property was sold under the authority conferred by this section. Section 44 of the Trustees Act provides that a purchaser or mortgagee, paying or advancing money on a sale or mortgage purporting to be made under any trust or power (statutory or otherwise) vested in a trustee, shall not be concerned to see that the money is wanted, or that no more than is wanted is raised, or otherwise as to the application thereof.

73 I note in passing that in Birks & Pretto: "Breach of Trust" it is said at 130 that if a trustee sells trust property, he receives some other property in exchange. If he is acting within the terms of the trust, the alienated property is no longer held in trust, but the new property is. If the trustee's sale was in breach of trust, the position is slightly different; the beneficiary is not bound by the sale, and can (subject to defences) maintain that the sold property remains trust property in whosever hands it may be found. Alternatively, he can elect to say that the proceeds are instead held by the trustee in trust. This election to take the proceeds can be understood to operate through the process by which the trustee is required to account for his stewardship of the trust property.

74 It emerges, then, as envisaged by the dicta of Pullin J in Bonini's case (supra), which is relied upon by the plaintiffs in support of their application to remove the Green caveat, that a valid exercise of the power of sale allowed to the trustee in the present case by the trust deed may indeed have the effect of extinguishing the caveator's equitable estate or interest in the land.

75 However, I am of the view that the extinguishment is effected not by the trustee entering into a contract for the sale of the land but by a conveyance of the legal title to the same which, in the case of the Torrens system, is effected by registration of a transfer of the subject land. This is because, in my view, the doctrine depends upon the creation of a fund to which the beneficiary's interest is then attached (in substitution for his interest in the land). Such a fund can only be created upon a settlement of the transaction, at which point title to the land is transferred from the trustee to the purchaser. Prior to conveyance of the legal title to the land, the prospective purchaser has only an equitable estate in the land. The decided cases suggest that, in the case of competing equities, the first in time (in this case being that of the unit holder) will take priority, unless, as in Butler v Fairclough (supra) and similar cases, there has been some failure to protect the entitlement to priority by omitting to lodge a caveat. (I recognise that in some circumstances, where the contract of sale has been entered into by a bona fide purchaser for value without notice, the prior equity of the unit holder might be defeated but this need not be considered in the circumstances of the present case, for the presence of the caveat upon the title has given notice of the unit holder's claim and, in any event, the evidence before me indicates that the prospective purchaser is well aware of the prior equity as demonstrated by the desire of its supportive bank to have the caveat removed before settlement is effected).

76 In my view, it follows from all of this that as a conveyance has not yet taken place, the caveator, prima facie, at least for the time being, has retained its caveatable interest in the land or, putting it another way, an arguable case has been disclosed that it retains a caveatable interest in the land.

77 As I have indicated in earlier discussion, the jurisdiction granted by s 138 to remove a caveat should not be exercised unless the case is one in which it is patently clear that the estate or interest sought to be protected cannot be made out. If there are disputed questions of fact or law (as there are in the present case) then the caveator should be afforded an opportunity to proceed by way of action in order to establish the claimed interest or estate. In other words, if a caveator is able to demonstrate a reasonably arguable case as to the existence of a caveatable interest, the ordinary course is for the caveat to remain and the disputed question to be determined at the trial of the action commenced by writ of summons. The issues to be resolved will be defined more exactly by the pleadings.

78 Further, even if I be wrong in the view I have expressed as to the continuance of the caveatable interest, I consider that, in any event, there are other reasons as to why the caveat should not be removed pursuant to an order made in response to the plaintiffs' originating summons.

79 First, there is a degree of ambiguity upon the evidentiary materials before me as to whether a binding contract of sale was made by the trustee in the purported exercise of its power of sale. There are references in the affidavit evidence to the buyer being in default and to the buyer (Lam) being keen to proceed "on the basis set out in the contract". If a binding contract of sale was not made, or is not presently in force, then it is questionable whether the first defendant's caveatable interest in the land has been extinguished pursuant to the overreaching approach reflected in the observations of Pullin J in Bonini's case (supra) upon which the plaintiffs rely.

80 It seems to me that the difference between the parties as to this aspect of the matter cannot properly be resolved upon the basis of affidavit evidence, and that the proper approach is for the caveat to remain until the caveator has had an opportunity to substantiate its claim in proceedings commenced by writ of summons.

81 Second, I am of the view that there was a failure by Tace as trustee to comply with the requirements of the 31 August cl 1.4 order whereby notice of any intended dealing was to be given to the Green parties. It is clear from the evidence before me that the only document or event relied upon by the plaintiffs in that regard is the Galic & Co letter dated 4 October 2006. However, that letter is clearly referring not to a transaction or dealing that is to be undertaken but to a dealing that is thought to be on foot. To my mind, the 4 October letter cannot be regarded as sufficient compliance with the obligation imposed by the Court order.

82 It emerged from my review of the legal principles that a trustee is subject not only to the duties and powers defined by the trust deed but also is obliged to observe the requirements of the law and any obligations referable to the fiduciary relationship between the parties. In the present case, the obligation of disclosure created by the cl 1.4 condition was of the same kind as the obligation to disclose imposed upon a trustee or, in certain circumstances, upon a fiduciary. Accordingly, to my mind, the first defendant has raised an arguable case that any contract of sale entered into was in breach of its trust and fiduciary obligations with the result that the subject transaction could arguably be set aside. This could bring with it a finding that the first defendant's caveatable interest was not extinguished by an exercise of the trustee's power of sale as contended for by the plaintiffs. Alternatively, such a finding could lead to the conclusion that in the circumstances of the presence case, where the land was not being sold to a bona fide purchaser for value without notice, the caveator is in a position to assert its claim to an equitable estate or interest in the land against the third party purchaser, with the result that it has a sufficient continuing estate or interest in the land to maintain its caveat.

83 In these proceedings, I do not purport to make any final judgment or appraisal about these issues as they will depend essentially upon findings of fact to be made at trial if the matter reaches that point. If fresh proceedings are commenced by the Green parties it seems likely that issues will arise as to whether the proposed sale was undertaken exclusively for the benefit of the unit holders in the Summerfield/Tace Trust or whether there was a conflict of interest referable to the requirements of the Kelmscott/Magenta Trust. Again, I do not purport to make any findings upon the basis of affidavit evidence as to these issues. However, the view of the matter I have expressed leads to a conclusion that the ordinary course should be followed whereby the caveat is to remain so that the disputed questions can be left for trial in an action commenced by writ of summons with pleadings.

84 The first defendant will be required to commence proceedings by writ of summons for declaratory or other relief within a prescribed time in order to substantiate its estate or interest in the land and its claim to maintain a caveat in the present form. I will hear from the parties as to the appropriate period of time and as to the exact form of the orders required to carry this ruling into effect. However, pending further submissions by the parties, I have in mind that the first defendant will be required to provide an undertaking as to damages in the usual form. Subject to the provision of such an undertaking and the commencement of legal proceedings caveat number J187153C will be extended until determination of the legal proceedings to be commenced or until further order of the Court. The parties will have general liberty to apply on 7 days notice.