Coldham and Coldham and Anor
[2014] FCCA 2377
•24 October 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| COLDHAM & COLDHAM & ANOR | [2014] FCCA 2377 |
| Catchwords: FAMILY LAW – Property – dispute between the wife and a creditor of the husband’s about which of them is entitled to money held in trust following the sale of a home – whether s.106B of the Family Law Act 1975 can be called in aid and the equitable charge granted by the husband to the creditor set aside – whether the charge attaches to the proceeds of sale as a result of the husband’s previous legal ownership of the property with the wife or whether the charge only attaches to the husband’s interest (if any) in the money pursuant to the operation of the consent property settlement orders – whether the creditor’s claim should be postponed to the wife’s as result of its conduct in not lodging a caveat prior to the wife signing the consent orders. |
| Legislation: Family Law Act 1975 (Cth), s.106B Cases cited: |
| Applicant: | MS COLDHAM |
| First Respondent: | MR COLDHAM |
| Second Respondent: | (BUSINESS OMITTED) PTY LTD (ACN (OMITTED) |
| File Number: | NCC 2776 of 2011 |
| Judgment of: | Judge Terry |
| Hearing dates: | 10 March 2014 |
| Date of Last Submission: | 10 March 2014 |
| Delivered at: | Newcastle |
| Delivered on: | 24 October 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr Rugendyke |
| Solicitors for the Applicant: | Catherine Henry Partners |
| The First Respondent: | No appearance |
| Solicitor Advocate for the Second Respondent: | Mr Patane |
| Solicitors for the Second Respondent: | Patane Lawyers |
ORDERS
The Applicant wife is declared the owner to the exclusion of the Second Respondent (business omitted) Pty Limited of the amount held in trust following the sale of Property C.
If either the Applicant or the Second Respondent wishes to seek a costs order they must within 14 days file and serve on the other a document setting out the amount of costs they seek, the basis on which costs are claimed and the submissions they wish to make about why a costs order should be made.
A party served with a document pursuant to Order (2) must within 14 days of the date of service file and serve on the other party a document setting out the submissions they wish to make in response to the application.
The matter is adjourned to 9.30am on 5 December 2014 for consideration of any applications for costs.
All outstanding applications are otherwise dismissed.
IT IS NOTED that publication of this judgment under the pseudonym Coldham & Coldham & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT NEWCASTLE |
NCC 2776 of 2011
| MS COLDHAM |
Applicant
And
| MR COLDHAM |
First Respondent
| (BUSINESS OMITTED) PTY LTD (ACN (OMITTED)) |
Second Respondent
REASONS FOR JUDGMENT
Introduction
The Applicant wife and the Second Respondent company ((business omitted)) are in dispute about entitlement to an amount of $45,901.42 held in trust following the sale of Property C. The property was formerly in the joint names of the husband and the wife and was sold in November 2013 pursuant to property settlement orders.
The husband owes (business omitted) money and in July 2013 it lodged a caveat over the property. It agreed to remove the caveat so that the sale could proceed provided that the wife (the trustee for sale) agreed to the net proceeds of sale being placed in trust pending resolution of the dispute about whether its claim or the wife’s claim to the money should have priority. There is insufficient money to satisfy both claims.
In support of her position that she should receive the money the wife relied on the property settlement orders which were made on 19 July 2012. The orders provide for the wife to receive the first $100,000.00 plus interest from the sale and the husband the balance. As only $45,901.42 is available the wife said that all the money should go to her.
(business omitted) relied on the fact that in February 2012 the husband signed a guarantee in support of an application by (business omitted) Pty Ltd for a credit account with (business omitted) and in the guarantee granted (business omitted) an equitable charge over all his real property.
(business omitted) supplied $52,000.00 worth of goods to (business omitted) between October 2012 and December 2012. The company has not paid for the goods and is in administration and (business omitted) is looking to the husband for the money.
(business omitted) said that because the equitable charge was granted before the consent orders were made and it had not engaged in any disentitling conduct its claim had priority.
The husband did not take part in the proceedings.
Documents relied on
The wife relied on her amended Application in a Case filed on 14 August 2013, her affidavits filed on 14 November 2012 and 25 November 2013 and the affidavit of her solicitor Lynette Lucas filed on 7 August 2013.
The only order the wife sought in her amended Application in a Case which remained relevant at the date of the hearing was that pursuant to s.106B of the Family Law Act 1975 the charge granted to (business omitted) in the guarantee dated 15 February 2012 be set aside.
At the hearing the wife’s counsel relied on a number of other grounds in support of his argument that the wife should receive the whole of the money in trust. They were that:
a)The guarantee the husband signed was unenforceable because there was no evidence that (business omitted) had suggested to the husband or his fellow director that they should obtain independent legal advice before signing it.
b)(business omitted) never had a caveatable interest in the property because the husband and wife were joint tenants and the husband had no separate interest over which a caveat could be lodged. The caveat would have been removed if the wife had made an application during the lapsing period.
c)Because the husband and wife were joint tenants the equitable charge took effect only over the husband’s potential individual share in the Property C property upon its sale. By the time the property was sold there was insufficient equity in the property to meet the wife’s entitlement pursuant to the consent orders. The husband therefore had no entitlement to the proceeds of sale and there was nothing for the equitable charge to attach to.
d)The wife’s equitable interest in the proceeds of sale pursuant to the consent orders should have priority over (business omitted)’s equitable interest. (business omitted) failed to lodge a caveat over the Property C property until well after the consent orders were signed and the wife comprised her property claim in circumstances where she had no means of knowing that the husband had granted (business omitted) an equitable charge.
These additional grounds were referred to in the Case Outline Document filed by the wife’s counsel on 18 December 2013 (the matter was previously listed for hearing on 19 December 2013 but was not reached) and (business omitted)’s solicitor did not take issue on 10 March 2014 with the wife’s counsel relying on these grounds.
(business omitted) relied on its Amended Response to the Application in a Case filed on 30 August 2013, the affidavits of its director Mr J filed on 30 August 2013 and 16 December 2013 and the affidavits of its solicitor Bruce Patane filed on 30 August 2013, 18 September 2013 and 23 September 2013.
(business omitted) sought:
a)A declaration as to the existence and effect of the equitable charge.
b)An order that the equitable charge had priority to the interest (if any) claimed by the wife in the husband’s interest in the land.
c)The sum of $56,703.16 plus costs and interest.
The hearing proceeded by way of submissions.
Background
The husband and wife commenced cohabitation in 1993 or 1994 and married on (omitted) 1999. There are no children of the marriage although the husband and wife each have children from previous relationships.[1]
[1] This basic background information is contained in earlier documents on the court file.
The parties purchased Property C as joint tenants in 1994 and Property W as joint tenants in 2005.
(business omitted) Pty Ltd ACN (omitted) was incorporated in June 2009 with the husband and Mr J as directors and the husband, the wife, Mr J and Mr J’s wife as shareholders.
The husband and wife separated in February 2011. It was the wife’s unchallenged evidence that the husband excluded her from the (omitted) business from the date of separation.
On 25 October 2011 the wife filed an application for a property settlement in the Federal Magistrates Court at Newcastle. The husband filed a response but the parties subsequently reached agreement and final orders were made by consent on 19 July 2012.
The orders provided for:
a)The husband to pay the wife $115,000.00; $15,000.00 to be paid immediately from money held in trust and $100,000.00 was to be paid within 10 weeks.
b)The wife to transfer her interest in the Property C property to the husband contemporaneously with receiving the $100,000.00 and with the husband refinancing the loan secured by mortgage over the Property C property in favour of the (omitted) Bank.
c)The husband to continue his efforts to sell the Property W property and to receive any net proceeds of sale.
d)The wife to transfer her shareholding in (business omitted) Pty Ltd and (business omitted) Pty Ltd to the husband and resign as an employee or office holder of the companies.
e)The husband to indemnify the wife and keep her indemnified from any liabilities owed by the companies.
f)The Property C property to be sold if the husband did not pay the wife the $100,000.00 and refinance the mortgage. In that event the wife was to receive the first $100,000.00 plus interest from the proceeds of sale and the husband the balance.[2]
[2] The orders provide for the wife to receive $115,000.00 or any balance thereof owing but the wife confirmed in her affidavit filed on 14 November 2012 that she had received the $15,000.00 and only $100,000.00 remained outstanding.
The husband did not pay the $100,000.00 or refinance the mortgage by the due date and as of late September 2012 the wife’s solicitors began pressing him to sign a listings form for the Property C property. He did not do so and on 12 December 2012 the wife filed an application in case seeking to be appointed trustee for sale of both the Property C property and the Property W property which also remained unsold. She also sought an order that the husband vacate the Property C property.
The husband opposed the application and on 6 February 2013 an interim order was made by consent that the husband do all things required by (real estate omitted) to facilitate the sale of both the Property C property and the Property W property.
On 15 February 2013 (unbeknown to the wife at the time) (business omitted) lodged a caveat over the Property C property. It relied on the terms of a guarantee signed by the husband on 15 February 2012 in support of an application by him and his fellow director Mr J for (business omitted) Pty Ltd to be permitted to open a credit account with (business omitted).
The Guarantee included the following terms:
1. The Guarantor unconditionally and irrevocably guarantees to (BUSINESS OMITTED) PTY LTD the due and punctual payment of the Guaranteed Monies......
9. As security for payment to (BUSINESS OMITTED) PTY LTD of all moneys payable by the Guarantor and for the Guarantor’s obligations generally under this Guarantee, the Guarantor charges in favour of (BUSINESS OMITTED) PTY LTD the whole of the Guarantor’s undertaking, property and assets (including without limitation all of the Guarantor’s interests, both legal and beneficial, in freehold and leasehold land) both current and later acquired.
(business omitted)’s unchallenged evidence was that between 31 October 2012 and 20 December 2012 it supplied products and materials to the company to the value of $52,026.86. The company did not pay and this amount together with interest and costs in accordance with the terms of the Credit Application was due and owing to (business omitted) when it lodged the caveat.
Mr J also signed a guarantee on 15 February 2012 and (business omitted)’s solicitor agreed that at all material times (business omitted) also had rights against him. However he submitted (correctly) that Clause 15 of the Guarantee meant that (business omitted) was not prohibited from pursuing the husband for the full amount outstanding. Clause 15 states that if there is more than one Guarantor the obligations of each Guarantor are joint and several.
On 12 June 2013 a contract for the sale of the Property C property was signed.
Settlement was to take place on 12 July 2013 but on 11 July 2013 the wife became aware for the first time of the existence of the caveat. Her solicitors engaged in correspondence with (business omitted)’s solicitors but no agreement could be reached about how to deal with caveat. Settlement did not take place in accordance with the contract and on 30 July 2013 the purchasers served a Termination Notice.
The husband had ceased making mortgage repayments in September 2012 and the bank was by this time regularly threatening to repossess the property. On 7 August 2013 the wife’s solicitor filed an affidavit setting out the dire circumstances which the wife faced as a result of the sale falling through. The wife asked the court to urgently make an order that the husband vacate the property and that she be appointed trustee for sale with a view to making further attempts to sell it.
On 9 August 2013 an order was made that the husband vacate the property within 28 days (in other words by 6 September 2013) and that the wife be appointed trustee for sale. (business omitted) was joined as a party to the proceedings.
The husband did not vacate the property as ordered and on 26 September 2013 the wife applied for and obtained a Warrant of Possession. The warrant was executed on 2 October 2013.
On 8 October 2013 a fresh contract for sale was entered into with settlement to take place on 15 November 2013. The sale was to the same purchasers but for a considerably reduced price. The wife said that she accepted the offer because she felt pressured by the bank to sell the property quickly.
Prior to settlement a second business, (business omitted), lodged a caveat over the property. The wife’s solicitors were able to negotiate its removal and were also able to reach an agreement with (business omitted)’s solicitor that (business omitted)’s caveat be removed subject to the net proceeds of the sale being placed in trust pending resolution of the dispute between the wife and (business omitted) about entitlement to the money.
The sale went through and the $45,901.42, the amount left after payment of selling costs and repayment of the mortgage, was paid into trust.
I will deal in turn with each of the arguments raised by the wife’s counsel for why the wife should receive this money to the exclusion of (business omitted) and in doing so will deal with (business omitted)’s arguments for why it should prevail.
Whether the guarantee is enforceable
The first argument by the wife’s counsel was that the guarantee was unenforceable because there was no evidence that (business omitted) had suggested to the husband or his fellow director that they should obtain legal advice before signing the guarantee. The husband did not of course take part in the proceedings and did not seek to take this point himself but the wife’s counsel submitted that it would be unjust and inequitable if a defective guarantee could effectively be treated as enforceable against the wife just because the husband failed to take part in the proceedings.
(business omitted)’s solicitor submitted that the claim that the husband was not made aware of his right to obtain independent legal advice was not factually correct because the husband had acknowledged in paragraph 14 of the guarantee that he was entitled to seek independent legal and financial advice before signing the guarantee.
(business omitted)’s solicitor is right and the wife’s counsel’s argument on this issue cannot succeed.
The print in the guarantee may be small but the contents are legible and in any event even if the husband had not been advised of his right to obtain independent legal advice this would not automatically render the guarantee invalid and unenforceable. The wife’s counsel referred me to the High Court decision of Commonwealth Bank & Amadio[3] but that case did not turn solely on whether or not the Bank had suggested to Mr and Mrs Amadio that they obtain independent legal advice before signing the guarantee. That was just one of a number of matters which the majority of the High Court held established that it would be unconscionable to allow the Bank to rely on the guarantee in the particular circumstances of that case.
[3] Commonwealth Bank v Amadio (1983) 151 CLR 447
Nothing in the facts of this case suggests that the husband would be likely to succeed in avoiding the guarantee because of unconscionable conduct by (business omitted).
The s.106B argument
The wife’s counsel submitted that the court should set the equitable charge (at least insofar as purported to operate in respect of the husband’s interest in the Property C property) aside pursuant to s.106B (1) of the Family Law Act 1975.
S.106B(1) provides as follows:
In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
The wife bears the onus of establishing that all of the elements of s.106B are made out[4] and only if she discharges that onus is the court obliged to consider whether in the exercise of its discretion it should set the instrument or disposition aside.
[4]ANZ Banking Group & Harper (1988) FamLR 649
It was not in dispute that the proceedings currently before the court were “proceedings under the Act”[5] and not in dispute that the granting of an equitable charge amounted to a disposition.[6]
[5] See Whitaker & Whitaker (1980) FLC90-813
[6] See D & D[Section 85 application] (1984) FLC 91-592 where Gee J expressed the view that an equitable charge was a disposition for the purposes of s.85, the predecessor of s.106B
The wife’s counsel did not suggest that the husband granted the charge with the intention of defeating an existing or anticipated order but he did suggest that the disposition was one which irrespective of intention was likely to defeat any such order, and this was the issue in dispute.
The husband signed the guarantee and granted the charge in February 2012, a year after the parties separated and four months after the wife filed an application for a property settlement. The wife’s counsel submitted that by granting the charge the husband made his interest in the real properties subject to the interest of (business omitted) and thereby reduced the pool of assets available for distribution between the parties and reduced his capacity to meet an order for payment to the wife.
He further submitted that by granting the charge the husband created a situation where if he defaulted in paying the wife as ordered by the court there would be a reduced equity in the properties from which payment would be available to the wife.
The wife’s counsel submitted that the husband had clearly made a disposition which was likely to defeat an anticipated order; to be satisfied of that one only needed to consider the actual fall-out of the husband granting the charge should the court rule that (business omitted)’s claim had priority.
(business omitted)’s solicitor submitted that looking at the actual situation following the sale of the property was not the correct way to approach the matter. He submitted that the test for whether an instrument or disposition was likely to defeat an order was subjective and that it was necessary for the court to consider all of the circumstances which existed at the time of making the disposition and to assess whether it was reasonably probable at the time that the instrument or disposition would have that effect.
He submitted that on the facts of this case at the time this disposition was made it was not foreseeably likely to defeat an order for the property settlement.
There is support for (business omitted)’s position as to the proper interpretation of s.106B in the decided cases.
Gee J in D & D [Section 85 Application] referred to the remarks of Elliott J in Pflugradt and said that the question was whether a reasonable person, in the position of the respondent when the disposition was made (my emphasis), would objectively regard there as being more than a 50% chance that the order would be defeated if the disposition was made.
In Whitaker & Whitaker Nygh J said as follows:
[Section 106B] is not a provision which enables a party long after the event to upset past transactions because the present funds or resources of the respondent turn out to be insufficient. Such an interpretation would mean that any transaction made at the time by the respondent could subsequently be set aside if at any future time the assets of the respondent were insufficient to meet the demands of an order. A more reasonable interpretation is that the disposition must be shown to have the direct effect or the likely direct effect of defeating an existing or anticipated order in the sense that if that disposition had not taken place the order would have been effective. Hence, if the order was, or would in any event have been, defeated by other supervening circumstances, it cannot be said that the order was defeated by the disposition or was at any time likely to have been defeated by it.
The husband’s action in signing the guarantee and granting the charge to obtain credit for a trading company have all the hallmarks of an ordinary business transaction. There was nothing to suggest that a reasonable person would have supposed in February 2012 that the husband’s action would be likely to defeat an order for property settlement which might in future be made in favour of the wife.
In any event, the wife’s entitlement pursuant to the consent orders has not been defeated or impacted upon because the husband granted the charge per se, rather it has been impacted on or defeated by a combination of supervening events, including the husband’s inability to obtain finance after the consent orders were made, his ceasing to pay the mortgage after he was unsuccessful in obtaining finance, the failure of the (business omitted) company after the orders were signed, the inability of the wife and (business omitted) to reach agreement in July 2013 leading to the first sale falling through and the bank subsequently putting pressure on the wife for a quick sale which affected the sale price.
There is nothing to suggest that in February 2012 a reasonable person would have considered that it was more than 50% likely or very likely at all that the husband granting a charge in support of an application for credit would have the effect which it ultimately will have if (business omitted) is accorded priority.
The wife has not discharged the onus which she bears and I do not accept that s.106B has any application in the case before me.
Whether the charge was efficacious given that the husband and wife were joint tenants
If I understand the wife’s counsel’s next submissions correctly they were that:
(a)the grant of an equitable charge did not give (business omitted) a caveatable interest in the Property C property and if the wife had acted promptly she could have successfully made an application to have the caveat removed;
(b)because the husband and wife were joint tenants the equitable charge took effect only over the husband’s potential individual share in the Property C property upon its sale. By the time the property was sold there was insufficient equity in the property to meet the wife’s entitlement pursuant to the consent orders. The husband had no entitlement to the proceeds of sale and there was nothing for equitable charge to attach to.
The wife’s counsel did not refer me to any cases which supported the claim that the grant of the equitable charge did not give (business omitted) a caveatable interest.
There are many reported cases in which the courts have accepted without argument that the grantee of an equitable charge has validly lodged a caveat on a property which is jointly owned. An example is the Family Law decision of Hodges Hall & Jovanovic & Markov[7] where the husband granted his solicitors an equitable charge and the solicitors lodged a caveat on the jointly owned former matrimonial home.
[7] Hodges Hall & Jovanovic & Markov (1995) 19 Fam LR 241
In Wildschut v Borg Warner Acceptance Corp (Aust) Ltd the Supreme Court of New South Wales on the application of a wife ordered that an equitable mortgagee who had lodged a caveat on a property which was jointly owned by the husband and wife remove the caveat prior to the completion of a sale. However the rationale for this decision was that it was clear that there would be no money left after the registered mortgagee was paid. The court was of the view that the caveator was seeking to maintain his caveat for the improper purpose of placing pressure on the registered proprietor to give him something to which he was not entitled and ordered the removal of the caveat.
However even if the wife’s solicitor is correct and the caveat would have been removed if an application had been made in time it takes me nowhere. An application was not made; the wife agreed to the money being placed in trust and there it sits. That is the reality I have to deal with.
The wife’s counsel, either in support of the proposition that there was no caveatable interest or in support of some other proposition which I am failing to properly grasp, referred me to the 1962 decision of Lyons v Lyons[8] in which the Court held that the grant of a mortgage by a joint tenant did not sever the joint tenancy and that upon the death of the grantor the land passed to the surviving joint tenant and the mortgage lapsed.
[8] Lyons & Lyons [1967]VR169
I was also referred to Wildschut v Borg Warner Acceptance Corp (Aust) Ltd[9] in which the Court gave conditional approval to the reasoning in Lyons v Lyons and questioned the efficacy of an equitable charge granted by one joint tenant absent the other joint tenant dying first or the land being sold.
[9] Wildschut & Borg Warner Acceptance Corporation (Aust)Ltd BC8701347)
(business omitted)’s counsel engaged with this argument and referred me to a journal article which called the reasoning in Lyons v Lyons into question. He also referred me to Clark v Raymor (Brisbane) Pty Ltd (No.2)[10] in which Thomas J expressed the view (although the matter was not argued) that the grant of an equitable charge did in fact sever the joint tenancy.
[10] Clark v Raymor (Brisbane) Pty Limited(No.2) (1982) Qd R 790
However I cannot see how this issue is relevant either. Neither Lyons & Lyons,[11] nor Wildschut & Borg Warner Acceptance Corp (Aust) Ltd[12] which commented on Lyons & Lyons, are authority for the proposition that a security granted by one joint tenant alone is of no value at all to a creditor. They simply point out the precariousness of such a security and the fact that the death of the other joint tenant before the grantor will/may render the security valueless.
[11] Lyons & Lyons (supra)
[12] Wildschut & Borg Warner Acceptance Corp (Aust) limited (supra)and see also Guthrie & ANZ Banking Group (1991) 23NSWLR672
The husband in the case before me has not died, rather the land has been sold and the proceeds of sale have gone into trust, and there is clear authority for the proposition that once this happens the charge takes effect on the interest of grantor in the money in trust. [13]
[13] Hodges Hall & Jovanovic & Markov (1995) 19 Fam LR 241
As for proposition b) to suggest that the charge only attaches to the husband’s interest after the operation of the consent orders is in my view to confuse the outcome which might arise after a consideration of priorities with the legal outcome arising out of ownership of the property. At the time the land was sold the husband and wife were joint tenants and as a result the husband and wife have a legal entitlement to the money in trust, with the husband’s entitlement being subject to the valid claims of the wife arising out of the consent orders and of (business omitted) arising out of the equitable charge.
The only way to make sense of the argument in b) above is to treat it as an argument about priorities.
Priorities
The wife’s solicitor submitted that this was a dispute between competing equities. He submitted that (business omitted) asserted an equitable interest in the assets of the husband pursuant to the grant of the charge and that the wife’s claim to a share in the proceeds of sale also met the definition of a mere equity. (business omitted) did not argue with this.
The wife’s counsel submitted that the wife’s equity, which arose later in time, should prevail because of the conduct of (business omitted) in failing to caveat until February 2013 which meant that the wife had no notice of (business omitted)’s interest at the time she signed the consent orders and compromised her own interests.
(business omitted)’s solicitor argued that (business omitted)’s equity should prevail as it was first in time and it had not engaged in any disentitling conduct because there was no duty to caveat.
Clark v Raymor (Brisbane) Pty Limited (No.2) is relevant here. It was also case which involved a supplier who had been granted an equitable charge but delayed in lodging a caveat. [14]
[14] Clark & Raymor (Brisbane) Pty Limited (No. 2)(1982 Qd R 790
The facts in Clark v Raymor (Brisbane) Pty Limited were that Mr & Mrs S were the owners of a property as joint tenants.
In February 1980 Mr S executed a guarantee in favour of a (business omitted) company which included a charge on all his property both real and personal.
In March 1980 Mr & Mrs S entered into a contract to sell the property to the respondents.
On 2 May 1980 documents were exchanged between vendor and purchaser with a view to settling the sale. A diligent search conducted that day revealed no encumbrances on the title other than a registered mortgage which was released upon completion. The relevant documents were lodged at the Titles Office.
There was a delay in the transfer being registered and on 6 May 1980, before the registration of the transfer had been effected, the (business omitted) company lodged a caveat claiming an interest in the property as an equitable chargee.
The equitable chargee claimed that it took priority over the purchasers because its equity pre-dated the equity of the purchasers. The judge at first instance disagreed and held that the prior charge was postponed to the equity of the purchasers to have the transfer registered.
The (business omitted) company appealed but the appeal was dismissed and in the appeal judgment Thomas J said as follows:
In the end the contest comes down to this. On the one hand we have a general equitable charge fairly well hidden in the middle of a commercial guarantee and held somewhere in the office of a (business omitted) supplier. The property to which it is said to give a prior claim was not named or identified. Apparently nothing was done to dissuade the owner from dealing with it. Such a charge could not validly have been taken from a company without registration being effected (s. 100 of the Companies Act). However equity still recognises such a charge when taken from an individual, even though it be kept under lock and key and is unable to be found by the most diligent searcher. Although these factors do not affect the intrinsic validity of the interest, they are relevant to the standard of conduct to be expected from the holder of such an interest if he wishes to use it to upset other specific dealings with the relevant property. The chargee, of course, failed to get in the deeds. This is hardly surprising, as the property was not even referred to let alone described in the guarantee. In consequence, it left the owner, or the owner’s mortgagee, or the two of them in combination, in a position to deal with the property without inhibition. It lodged no caveat to warn third parties that they could deal with such land only subject to the interest of the chargee. It failed to contact the registered mortgagee or notify it of its interest. Had it done so, the registered mortgagee would upon redemption have been obliged to hold the certificate of title or balance proceeds of sale for the chargee (s. 80(5) Property Law Act 1974; compare Dearle v. Hall (1828) 3 Russ 1).
On the other hand the purchaser did nothing unusual. It entered into a contract in the usual form, and searched the title before paying the balance purchase monies. It obtained the appropriate documents including the duplicate certificate of title, and promptly lodged them for registration. It was not capable of doing anything more. In particular there was nothing it could have done to have discovered the chargee’s interest.
The equities between these two parties simply are not equal. In my opinion there is no need to resort to the maxim of last resort — Qui prior est tempore, potior est iure. I would dismiss the chargee’s appeal.[15]
[15] Clark v Raymor (Brisbane) Pty Limited (No.2) (supra)
......
This provides the solution to the matter.
It was the wife’s unchallenged evidence that after separation in February 2011 the husband excluded her from the businesses they had operated during the marriage and from the Property C property.
The husband signed a guarantee in favour of (business omitted) in February 2012 but (business omitted) did not lodge a caveat until 15 February 2013. It was under no obligation to caveat but the result of it not doing so was that the wife could not have discovered the existence of the equitable charge by conducting a search prior to signing the consent orders in July 2012.
The only way the wife could have discovered the existence of the charge before signing the consent orders would have been by asking the husband questions during the negotiation process prior to the consent orders being signed and receiving truthful answers. (business omitted)’s solicitor did not however submit that the wife had failed to make reasonable inquiries of the husband before signing the orders and did not seek to cross-examine the wife.
Insofar as (business omitted)’s solicitor suggested that the wife had revealed some sort of constructive knowledge of a potential future security being granted by the husband by seeking in her application filed in October 2011 an order that the Property C property be sold and that “all encumbrances” rather than just the mortgage be paid from the selling costs I do not except that any inference adverse to the wife can be drawn from this piece of drafting. The consent orders which were eventually signed made no reference to “all encumbrances” and provided only for the mortgage to be paid from the proceeds of sale of the Property C property.
I am also mindful of the fact that although the equitable charge was granted prior to the making of the consent orders the husband’s liability to (business omitted) is for the supply of goods commencing on a date some months after the consent orders were made.
The wife settled her property claim in July 2012 and relinquished her right to certain assets in exchange for receiving others. She agreed to certain time frames for settlement and she made her decision based on there being no evidence of a charge to (business omitted) which might, before the orders could be carried into effect, impact on her entitlement. She agreed to the husband retaining the company and continuing to trade, unaware of the fact that the husband had granted a charge which could in the future if the husband or the company ceased to pay their bills impact on her entitlement. She could not have found out about the charge by doing a public search.
Just as in Clark & Raymor (Brisbane) Pty Limited (No.2), this is a case where the equities between the parties are not equal. The wife’s claim should take priority over the claim of the equitable chargee. It follows that the wife is entitled to the whole of the money in trust.
Costs
Each party sought costs in their respective application and response. I cannot deal with the costs issue however without receiving information about the amount sought and the basis on which costs and claimed and without hearing submissions as to whether the order should be made.
I am concerned about the expense already incurred by the parties in pursuing this matter and I intend to list the matter at 9.30am on 5 December 2013 for consideration of any applications for costs and to make an order for material to be filed relevant to this issue prior to that date.
For all of the above reasons the orders of the court will be as set out at the beginning of this judgment.
I certify that the preceding ninety-one (91) paragraphs are a true copy of the reasons for judgment of Judge Terry
Associate:
Date: 24 October 2014
Key Legal Topics
Areas of Law
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Family Law
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Equity & Trusts
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Civil Procedure
Legal Concepts
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Constructive Trust
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Costs
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Remedies
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Standing
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