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[2017] VSC 601
Supreme Court of Victoria
2017-10-03
JOHN DIXON J
Original judgment source is linked above.
REAL PROPERTY - Caveat - Summary removal - Oral contract for services on a quantum meruit between registered proprietor and caveator - Caveator to perform work to prepare property for sale - Caveat wrongly claiming a freehold estate on the grounds of an implied resulting or constructive trust - Whether any alternative ground for a different estate or interest revealed - Whether caveat would be amended - Caveat removed - Transfer of Land Act 1958, s 90(3).
1 The plaintiff seeks orders for the removal of a caveat lodged by the first defendant ('caveator') over a property at 9 Sherrin Court, Werribee. The plaintiff has been the registered proprietor of that property since 15 January 2013.
2 The Registrar of Titles is joined as a second defendant but has, by letter, indicated that he does not intend to appear in the proceeding and has no objection to orders sought in the form that the Registrar has specified in his letter.
3 The property is mortgaged and it appears that the plaintiff told the caveator that he was in default under that mortgage and that the first defendant that the banks had taken steps to enforce its interests. Neither party has produced documentary evidence explaining the bank's position. It appears that the plaintiff negotiated with the bank to sell the property by private sale in order to maximise his possible return.
4 The plaintiff and the caveator are known to each other from circumstances described in the affidavits that I need not set out in these reasons. It appears that the plaintiff asked the caveator to assist him to get the property ready for sale.
5 The caveator described the conversation when this request was made, which is critical to the outcome of this proceeding. He said:
In order to get the property ready for sale, Chris begged me to help him finish it and get it in a state in which it could be sold. He used words to the effect "Please help me finish the house and get it ready for auction. I want you to stay and help me clean my house. I don't want to end up on the street". I told him words to the effect that there is a lot of work to do and asked him if he had any money to do the work. Chris told me that he didn't. I asked him how he would pay me as cleaning out the property would be a fulltime significant job.
I told Chris that the amount of work needed was tremendous and that I couldn't really put a figure on it but that the work would be intensive and back breaking. I told him that I would not help him unless he could assure me he could play me otherwise I would have no reason to work on Chris's house as I could easily have found a job elsewhere. My family has numerous business interests and I could have found work readily.
Chris told me words to the effect that he needs my help and that he would pay me from the proceeds of the sale of the house when it settled. He said he wanted to pay me for the work I was to do at the house.
6 The plaintiff put it different complexion on the circumstances in which the caveator came to live at the Sherrin Court property but for present purposes it is unnecessary to resolve the debate between them.
7 The caveator states that in some time during March he moved into the property and he set about fixing the property up for sale in the period from sometime in March until 23 June 2017.
8 Sometime earlier in June, the plaintiff engaged an agent to sell the property and on 8 July 2017, the property was sold.
9 On 26 July 2017, the caveator's solicitor lodged his caveat. The caveat states the grounds of claim to be on 'implied, resulting or constructive trust'. It records the estate or interest claimed to be a freehold estate, and it purports to absolutely prohibit any dealings with the land.
10 There is no evidence that at any time prior to lodging this caveat the caveator made any demand of the plaintiff in respect of the work that he claims to have performed at the property. Presumably in relation to the impending settlement of the sale contract, the plaintiff became aware of the existence of the caveat on the title. On 5 September 2017, the plaintiff requested what amount was claimed by the caveat. Plainly, the plaintiff knew there was a disputed debt between him and the caveator. This request was not an acknowledgement of the grounds of the claim. The caveator claimed the sum of $45,000.
11 The plaintiff requested evidence. The following day, the contract of sale, which was due for settlement, was not completed, although it is not clear why. On 8 September 2017, the caveator responded to the plaintiff's request for evidence saying:
We confirm that we are instructed our client is owed $45,000 for work undertaken with respect to the property at 9 Sherrin Court, Werribee. We confirm that, on our instructions, your client sought the assistance of our client in preparing the property for sale. Your client also indicated to our client that he would be remunerated for such work and that our client would be paid out of the proceeds of the sale of the property.
12 Settlement of the contract had been rescheduled for 11 September 2017 but was unable to proceed on that date because of the purchaser's arrangements to finance the residue. On 12 September 2017, the plaintiff served a notice of rescission on the purchaser.
13 On 14 September 2017, there were direct negotiations between the caveator and the plaintiff that are described in the affidavits and which resulted in a text message being sent to the effect that the caveat would be removed. However, it would seem that those negotiations were inconclusive. The caveat was not withdrawn and there were subsequent communications between solicitors about the instructions that they each received concerning those negotiations.
14 On 18 September 2017, the plaintiff foreshadowed this application and that day the caveator offered a withdrawal of caveat at settlement in return for a cheque for $45,000 to be held in the caveator's solicitor's trust account pending resolution of the dispute as to the caveator's entitlement to that sum. On 21 September 2017, the caveator's solicitors wrote again stating:
Our client maintains that he has a proprietary interest in the above property by virtue of the works performed and the agreement for our client to be remunerated for such works from the proceeds of the sale of the property.
15 The application for the summary removal of the caveat is made pursuant to s 90(3) of the Transfer of Land Act 1958. The principles that are to be applied on the application to remove a caveat are wellknown. Relevantly, the authorities,[1] established as follows:
1. The court's power under s 90(3) of the Act is discretionary.
16 In Lawrence & Hanson Group Pty Ltd v Young,[2] the Court of Appeal affirmed as correct statements of the law Warren CJ's statement of the principles in Piroshenko[3] which are the principles already discussed. The Court of Appeal also referred with apparent approval to Warren CJ's comments in Schmidt v 28 Myola Street Pty Ltd as restated in Piroshenko that:
A caveat may only be lodged in a form commensurate to the interest it is designed to protect.[4]
17 In Schmidt, Warren CJ declined to remove a caveat notwithstanding uncertainty surrounding the facts in the case. She noted that a practice had developed in Victoria whereby caveators, presumably through their solicitors, immediately opted for an absolute prohibition on dealings with the land. That appears to be what was done in this case by the caveator's solicitor, but I should indicate at this stage that the caveator did not seek absolutely to prevent any dealings with the land despite what appears on the face of the caveat. The caveator's position was made clear to be that he would provide a withdrawal of the caveat at settlement on the condition that the sum of $45,000 was secured by payment into a solicitor's trust account.
18 Turning then to the first issue of whether the caveator has satisfied me that there is a serious question to be tried, that he does have the estate or interest that he claims in the caveat, the caveator must demonstrate at least some probability on the evidence before the court that he will be found to have be entitled to a freehold estate in the land by reason of an implied, resulting or constructive trust.
19 When regard is had to the evidence provided by the caveator, it is unsurprising that the caveator proceeded on the basis that what he is effectively entitled to is a security interest. Counsel for the caveator argued that this security interest was effectively identified by reference to the concept of a constructive trust where it appears in the grounds of claim. That is, he submitted, as I understood it, the caveator's entitlement to be paid for the work that he performed on a quantum meruit was enforceable in equity by a constructive trust. This conclusion arguably arose from the nature of the work performed and from the agreement he made with the registered proprietor.
20 The expression used in the caveat is not simply 'constructive trust'. The grounds refer, as I have noted, to an implied, resulting or constructive trust which is not an uncommon phrase, despite the fact that the authorities make clear there are real and distinct differences between each form of trust identified in the phrase. The use of the phrase is usually evidence of a degree of loose thinking.
21 However, the evidence disclosed no basis for the caveator to claim an entitlement in equity to the remedy of a constructive trust. The crux of what is alleged by the caveator, set out above, and accepting it at its highest, is that the plaintiff requested that the caveator perform work cleaning up and preparing the property that was to be sold to aid its presentation to the market. The caveator told the plaintiff that in his view it was a substantial job, one that he could not even put a figure on, but that it would be intensive. He also stated that it was work that he was not prepared to undertake unless the plaintiff could assure him that he could pay him.
22 Pausing there, this must be a concern arising out of earlier statements made by the caveator in his affidavit that he understood the plaintiff to be in financial difficulty, in particular to be in default under his mortgage, and lacking the funds to remedy that default and particularly to clean up the property for its sale. The caveator believed the plaintiff was also lacking a job that would enable him to raise funds by finance for these purposes.
23 It is unsurprising that the caveator wanted an assurance that he could be paid, but on his own evidence he did not ask for any interest as a beneficiary of any equity in the property and was not led by the plaintiff to believe that any such interest was being granted to him if he performed the work. He did not ask for security.
24 The plaintiff's response, accepted by the caveator for he did the work, was to tell him that he needed his help and that he would pay him from the proceeds of the sale of the house when it settled. What the plaintiff did was to identify, to reassure the caveator, how he could pay him. He stated that he would have sufficient funds to pay for the work once he received the proceeds from the sale of the house, that is after the contract for sale had settled. Nothing in this conversation demonstrated an acceptance by the plaintiff of any intention to charge the land with the obligation to repay the cost of the cleaning up work or to create any beneficial interest in it.
25 So much is clear from the fact that all that the plaintiff referred to was the proceeds of the sale of the house after settlement when the plaintiff has parted with title to the property. It cannot be said that anything in that conversation would create a freehold estate by reason of a trust that effected a beneficial interest in the title to the property such as would justify the imposition of a caveat.
26 The caveator contended that the nature of the connection between the work performed under the contract that he agreed with the plaintiff and the proprietary interests in the property was to be found in the concept of salvage, in the sense identified and discussed by Davies J in Thackray v Gunns Plantations Ltd.[5]
27 This case concerned a claim by a receiver to be indemnified out of property that was part of a managed investment scheme and the facts show the fund in issue and the claimants to it to be readily distinguishable from this case. The principle the caveator sought to invoke was described by Davies J by reference to the decision of Dixon J, as he then was, in Re Universal Distributing Co Ltd,[6] which Davies J described in these terms:
The principle enunciated by Dixon J was that a person who works and incurs expense to care for, preserve or realise property to create a fund is entitled to a charge against the fund or the property, if no fund is created, in priority to any other claimant. The principle is sometimes referred to as salvage in the case law.[7]
28 The notion implicit in this principle is that, where in insolvency law there are competing claims to a fund and one of the claimants has worked and incurred expense in order to care for, preserve, or realise the fund against which claims are being made, such as where one creditor incurs expenses that contribute to the realisation, care or preservation of funds that become available to creditors more generally, an equitable lien arises in respect of those costs or expenses for the benefit, by way of priority, for that particular claimant to recover those expenses.
29 The principles are often stated by reference to the position of a liquidator but it was recognised that the categories of persons to whom the principle may apply are not closed and may extend to receivers or receivers and managers. Davies J stated that the underlying principle in each case is that it would be inequitable for the person who has created or realised a valuable asset in which others claim an interest not to have his or her costs, expenses and fees incurred in producing the asset, paid out of the fund or property created.
30 This principle has no application in the present circumstances. These circumstances do not involve the creation of a fund of the sort under discussion and I reject the submission of counsel for the caveator that it did so. This case is concerned with property rights, not rights in insolvency and the property was preexisting and not converted into a fund for the benefit of claimants. Logically extended, the argument would require that the expense of mowing the grass for the sale should be subject to an equitable lien that enables the prior interests of other creditors in the property being sold to be deferred.
31 There was nothing in the conversations deposed to by the caveator that identified that he was intending to create a fund such as the difference between the depressed value of the property in its then current state and the realisable value of the property when sold after he had performed work cleaning it up or some other such type of fund in which he and other claimants had an interest and where he would be entitled to enjoy priority. In my submission there is nothing in that conversation or in the circumstances more generally that would invoke the principles of equity that were applied in the insolvency cases.
32 The conversation alleged evidenced nothing more than an oral agreement for services on a quantum meruit, in circumstances where the worker was concerned, legitimately it would appear, about whether and when he would be paid. Further, the conversation alleged by the caveator does not go far enough to demonstrate acceptance by the plaintiff of any obligation to create a charge or a security against the property.
33 Counsel for the caveator submitted that in the event that this caveat was ordered to be removed, the caveator would be entitled to lodge a caveat on the alternative ground of claiming an interest as chargee. I do not agree. Were the caveator to evince an intention to do so, an injunction would likely lie. Alternatively, it might be thought that the caveat should be amended in order to substitute a claim as chargee or holder of an equitable lien. No application was made to amend the caveat on this application. For the reasons that follow I would have refused such an application if made. In my view, there is no proper basis for the caveator to maintain a caveat in the circumstances.
34 The issue of amendment of caveats has been considered by this court in a number of judgments where it has appeared that the grounds of claim have been mistakenly stated. In three cases before this court,[8] the issue has been substantially identical to the present case in that a caveator has sought to substitute for a claim of an estate in a fee simple or for an absolute ban on dealings with the property a claim to an interest by way of a charge or an equitable lien. The principles that relevantly govern the exercise of discretion under s 90(3) of the Act to amend a caveat are as follows and each of these matters would have told against any application to amend the caveat.
35 First, where, as would be needed 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 pursuant to a charge or equitable lien arising under an agreement that prohibited dealings other than to recognise the entitlement to the debt is to substitute a new caveat. Substantially the whole caveat has to be amended. In reality it would be withdrawn and replaced.
36 Secondly, the circumstances in which the error in the description of the grounds of claim or the interest claimed was made are relevant. This is not a case where the caveat has been prepared by an unrepresented person. This caveat was prepared and lodged by a solicitor who certified that he had taken reasonable steps to verify the identity of the caveator and had retained the evidence supporting the claim.
37 The third matter affecting the discretion is that the court should not readily act in a way which might encourage the belief that caveats can be imprecisely formulated and then fixed up later. Caveats act as an interlocutory injunction, albeit by an administrative act rather than by court order, and can have serious consequences that affect the register of property titles and interests. The courts have recognised wrongly formulated caveats should not easily be tolerated.
38 The caveat bears every indication of having been imprecisely formulated with the possibility that it might be fixed up later. The court has, on a number of occasions, commented that caveats should not be used as bargaining chips. When regard is had to the chronology of events and the underlying circumstances, that is what has here occurred.
39 The final matter is the merits of the claim for a caveatable interest of the kind sought by the amendment. In other words, the court should have regard to all of the considerations that arise on applying for removal of the caveat in the terms of the amendment sought. For the reasons already given, the caveator's version of the oral agreement with the plaintiff, assuming it can be proved, does not establish any basis to fix a liability on the property by way of a charge or an equitable lien. There is nothing to indicate that the registered proprietor intended to charge the land as security for the performance of the obligations under the agreement to prepare the property for a sale. What occurred was that the caveator expressed a concern about when and whether he would be paid for the work he was requested to do and has received an assurance about the source of funds and the timing of payment. That is altogether different from accepting an obligation to provide a security for the payment of those funds.
40 For these reasons, the caveator could not establish that there is at least some probability on the evidence before the court that he would be found to have the equitable right or interest in the land that he asserts by the caveat or which he might assert by a differently drafted caveat.
41 There being no serious question to be tried, it is unnecessary to consider where the balance of convenience lies.
42 I will order that the Registrar of Titles, pursuant to s 90(3) of the Transfer of Land Act 1958 remove the caveat lodged by dealing number AQ082535L on 26 July 2017 from the land in Certificate of Title Volume 09431 Folio 287.
43 I will order that the first defendant pay the plaintiff's costs of the proceeding.
44 I will reserve liberty to the plaintiff to make any application pursuant to r 63.23 of the Rules as it may be advised against the first defendant's solicitors.
[1] Sylina v Solanki [2014] VSC 2, [43] (Elliott J); Percy & Michele Pty Ltd v Gangemi [2010] VSC 530, [38]-[48] (Macaulay J); Piroshenko v Grojsman (2010) 27 VR 489, 491-492 [7]-[11], 492-494 [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).
[2] [2017] VSCA 172, [38]; see also 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].
[4] Piroshenko (2010) 27 VR 489, 498 [40]; [2006] VSC 343; (2006) 14 VR 447.
[5] [2011] VSC 380; (2011) 85 ACSR 144, 153-159.
[6] [1933] HCA 2; (1933) 48 CLR 171, 174-175.
[7] [2011] VSC 380; (2011) 85 ACSR 144, 154 [40].
[8] Percy & Michele Pty Ltd v Gangemi [2010] VSC 530; Martorella v Innovision Developments Pty Ltd [2011] VSC 282; White v White [2014] VSC 449.
Yamine
Mazloum [2017] VSC 601
(2010) 27 VR 489
(2006) 14 VR 447
(1933) 48 CLR 171