Capital One Securities Pty Ltd v Lesic

[2020] VSC 781

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

PROPERTY LIST

S ECI 2020 04231

CAPITAL ONE SECURITIES PTY LTD	Plaintiff
(ACN 125 836 160)
v
ROBERT LESIC	First Defendant
and
REGISTRAR OF TITLES	Second Defendant

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JUDGE:	Ginnane J
WHERE HELD:	Melbourne
DATE OF HEARING:	13 November 2020
DATE OF JUDGMENT:	13 November 2020
CASE MAY BE CITED AS:	Capital One Securities Pty Ltd v Lesic
MEDIUM NEUTRAL CITATION:	[2020] VSC 781

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REAL PROPERTY – Caveat – Caveator’s equitable interest – Second mortgagee seeking removal of caveat – Balance of convenience - Caveator’s suspicions about second mortgagee’s claimed mortgage debt – Whether caveat should be removed and second  mortgagee’s share of settlement sum paid into trust pending further enquiry – Caveat removed unconditionally – Transfer of Land Act 1958 s 90(3).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr B Carew	Velos Lawyers
For the  First Defendant	Mr K Wolahan	Malkoun & Co Lawyers

HIS HONOUR:

1. The plaintiff, Capital One Securities Pty Ltd, seeks an order that the first defendant, Mr Robert Lesic, remove a caveat over the title of a property in Aberfeldie. The plaintiff is the second mortgagee of the property and Westpac is the first mortgagee. The plaintiff’s case is that it loaned about $149,000 on the security of its second mortgage to the registered proprietors Vongsa Soch and Suzana Soch. Mr Lesic lodged a caveat on 27 March this year claiming an implied resulting or resulting trust. That claim was fortified by a default judgment or order of the County Court given on 29 October 2020, which recited that it was made following non-compliance by the defendant, Vongsa Soch, in making discovery and attending a court-ordered mediation.  Vongsa Soch’s defence was struck out and there was judgment against him in favour of Mr Lesic for sums totalling $349,163.62. A declaration was made that Mr Lesic has an equitable interest in the Aberfeldie property and was entitled to maintain a caveat over the title.

1. The property has been sold at a mortgagee auction for $1.4 million. Settlement is awaiting the outcome of this application.

1. The principles applicable to caveat removal applications were stated by Warren CJ in Piroshenko v Grojsman.[1] The caveator must first establish that there is a serious question to be tried that they have the estate or interest which they claim in the land and that the balance of convenience favours the maintenance of the caveat until trial.

   [1](2010) 27 VR 489.

1. There is no dispute that Mr Lesic has established an equitable interest or estate in the land. His concern is that if Capital One Securities is paid its claim, in whole or in part, there will be nothing left to repay the loans he made to the Sochs.

1. The issue is where the balance of convenience lies and whether it lies in removing the caveat or removing it subject to the terms and conditions proposed by Mr Lesic. Section 90(3) of the Transfer of Land Act 1958 provides that any person who is adversely affected by any such caveat may bring proceedings in a court against the caveator for the removal of the caveat, and the court may make such order as it thinks fit.

1. Capital One Securities says it is adversely affected by the caveat because the settlement is unable to proceed and the purchaser of the property for $1.4 million is waiting to settle. It is entitled to be paid the loan it made to the Sochs.

1. Mr Lesic has filed an affidavit in which he identifies his two concerns about withdrawing the caveat unconditionally as follows:

(a)the plaintiff, Capital One Securities, has refused to evidence the purported advance to Mr Soch; and

(b)the plaintiff does not appear to have sold the Aberfeldie property in a regular fashion.

That second matter arises from the speed at which the property was sold, the fact of the purchase price being $1.4 million, which it was suggested was lower than the appropriate value of the property. The property was purchased by Mr Soch in 2018 for $1.5 million and yet it was sold on 9 July 2020 for $1.4 million. There is evidence of the effect of the restrictions due to  the COVID pandemic on sales of property in Melbourne in July 2020.

1. In the clear submissions of counsel for Mr Lesic, the solution  proposed was that $149,000 from the settlement, which would otherwise be payable without restriction to Capital One Securities, be placed in their solicitors’ trust account and that Capital One Securities provide to Mr Lesic particulars of the loan application and repayments related to its  second mortgage. These would include any statements showing the loan balance provided to the borrower, any bank statement or other source document evidencing advances of the loan to the borrower and any evidence showing repayment of any part of the loan to the borrower. The  $149,000 would not be released to Capital One Securities unless the parties agreed or the Court so ordered.

1. Mr Lesic’s case was that the balance of convenience favoured the maintenance of the caveat on the terms he proposed because of doubts about the bona fides of the plaintiff’s second mortgage over the Aberfeldie property. He said that his doubts have not been adequately addressed in the correspondence provision of documents or through access to the PEXA[2] file.

   [2]PEXA (Property Exchange Australia) is a national online system which provides for, among other things, the electronic preparation and lodging of documents and dealings relating to real property in Australia.

1. Mr Lesic also argued that the plaintiff’s reliance on the overdue settlement as an argument for the removal of the caveat must be balanced against the potential extinguishment of Mr Lesic’s interest. A caveat cannot be renewed once removed. The Court has a wide discretion in deciding whether to remove a caveat and can impose conditions that allow settlement to proceed. The first ranking mortgagee could be paid and Mr Lesic give the opportunity to test and protect his interests in a fair time frame.

1. Correspondence and communications between the parties occurred in which Mr Lesic’s solicitor raised questions about proof of the money said to be advanced by Capital One Securities to the  Sochs. In an affidavit filed this morning, Mr Karas, who is a director of Capital One Securities, says:

The loan proceeds were advanced over a period of time, as is evidenced by the attached bank statements of the Plaintiff and schedule of payments recording advanced made under the loan, which is exhibited hereto.

The said schedule does not correlate to the cent to the advances recorded in the bank statements as the full sum advanced includes fees that were owed to the Plaintiff (and therefore do not present as transfer of money to the borrowers).

Further, the owners did not complete the works they were carrying out. The Plaintiff spent $15,000, paid for roof repairs. Exhibited hereto…is the invoice paid in that regard.

…

The Plaintiff will suffer a shortfall at settlement…

1. Counsel for Mr Lesic pointed to deficiencies in the material provided in Mr Karas’s affidavit, including that the bank documents exhibited to it did not include the account number or the account holder’s name and that the documents showed a sporadic payment pattern lacking details of the purpose of the payment or of the payee. Mr Lesic’s position is that this application  should not be hurried through and that he should be given time to require Capital One Securities to prove that it did make the loans on which it relies.

1. In deciding the application I must focus on the purpose of the discretion granted by s 90(3) of the Transfer of Land Act. First of all account must be taken of the plaintiff’s interest as second mortgagee, which has priority over Mr Lesic’s equitable interest in the land. The  question then is should the caveat be removed on the terms that Mr Lesic proposes.

1. As mentioned, Mr Lesic has suspicions about whether the payments were in fact made. I have to decide whether there is any basis in evidence to suggest that the plaintiff did not make the loans it claims to the Sochs and the strength of that evidence. I have the sworn statement by Mr Karas that the monies were advanced.

1. It is unclear what legal action Mr Lesic could bring against Capital One Securities. There is no statutory obligation on one security holder to give information about the basis of its security to a person holding a lower ranked security. It may be that the only action  theoretically possible would be in fraud if there was clear proof to sustain it. But to allege that would require firm proof. Suspicions, or views based on a suspicion, are less than the standard required to commence such an action.

1. I understand why Mr Lesic seeks time to make further enquiries and obtain further information, but to remove the caveat on the terms he proposes would require some reasonably strong evidence to suggest that the payments that Mr Karas has sworn to were not in fact made. I do not  consider that that evidence has been presented.

1. In my opinion, based on the material before me, it would not be a proper exercise of my discretion under s 90(3) to remove the caveat on the terms that Mr Lesic proposes. The plaintiff is entitled to the removal of the caveat and I will order that the second defendant, the Registrar of Titles, remove it from the title.

1. In respect of costs, I take into account that Mr Lesic has a caveatable interest and lodged a caveat  as he was entitled to do. It is always a question of judgment whether a party who has a caveatable interest should withdraw the caveat when requested to.  As is understandable, Mr Lesic sought information from the plaintiff. Ultimately, the decisive affidavit from Mr Karas was only received this morning. While I consider that the plaintiff is entitled to an order for its costs against Mr Lesic on a standard basis, because it had to bring this application, there is no basis for awarding costs on an indemnity basis.