Elderly Citizens Homes of SA Inc v Balnaves No. Scgrg-97-1008 Judgment No. S6855
[1998] SASC 6855
•18 September 1998
ELDERLY CITIZENS HOMES OF SA INC v BALNAVES
[1998] SASC S6855
Civil
Debelle J
This is an application for distribution of funds remaining after the sale by the first mortgagee of a substantial house property. The house property is situated at 100 East Terrace, Adelaide. It is called “Rymill House”. The land is comprised and described in Certificate of Title Register Book Volume 5315 Folio 383. Rymill House was sold by the first mortgagee, Elderly Citizens Homes of SA Inc (“Elderly Citizens Homes”), for the sum of $1,320,000. Elderly Citizens Homes has been paid all moneys due to it. There is a balance of $368,696.93 remaining. There are competing claims for the balance. Elderly Citizens Homes has paid the total sum of $368,696.93 into court to abide the order of the court.
The Claimants
There were initially eight competing claimants. They were JAD International Pty Ltd, Melbourne Projects Pty Ltd, the estate of William Burton deceased, F Moir Management Services Pty Ltd, Mrs Jean Balnaves, Mr John Parsons, Mr Brian Warming and the Child Support Agency. The claim by the Child Support Agency is for a debt due to the Commonwealth for unpaid child maintenance. Mr Warming and the Child Support Agency have decided not to prosecute their respective claims. Thus, six claimants compete for the sum of $368,696.93. Each claims an equitable interest in the land. Those interests were created at different times. The questions to be determined are whether all of the parties have an equitable interest and the priority of the respective interests. Before examining those issues, I set out the circumstances leading to the claims.
The Balnaves Family Trust
These proceedings stem from dealings in Rymill House during the past 18 months by the Balnaves Family Trust and from loans made by that Trust. The primary beneficiaries of the trust were Peter John Balnaves and Jane Teresa Cummings and their children and grandchildren. I will refer to Peter John Balnaves as “Peter Balnaves” or “Balnaves”. In 1995 the trustee of the Balnaves Family Trust was a company called Cummings Corporation Pty Ltd (“Cummings Corporation”). The settlor of the trust was Mrs Jean Balnaves, one of the claimants. She is the mother of Peter Balnaves. On 1 December 1995 Cummings Corporation ceased to act as trustee and Peter Balnaves was appointed as the new trustee. The appointment was not registered at the Lands Titles Office until 13 May 1996. Peter Balnaves was also a director of Cummings Corporation. At all material times since December 1995 Peter Balnaves has been the trustee of the Balnaves Family Trust. The documents evidencing the appointment of Peter Balnaves as the new trustee appear to have a number of deficiencies. However, no party has questioned the validity of the appointment and I do not think anything turns on the deficiencies. The appointment of the new trustee has been registered. I proceed on the footing that the appointment was valid.
The appointment of Balnaves as the new trustee does not affect any of the questions as to priority. As a volunteer, Balnaves became the registered proprietor of Rymill House subject to all existing equities. As will be seen, Balnaves was often the party to a particular agreement. I find that, at all material times, he was acting on behalf of the Balnaves Family Trust. No party put that question in issue.
Peter Balnaves was able to induce a number of people to part with substantial sums of money in the form of loans to Cummings Corporation or to himself. The lenders have not been diligent in securing adequate security for repayment of their respective loans. In some cases a mortgage has been executed but not registered.
The Evidence
The parties all relied on affidavit evidence. The affidavits which were admitted were:
Brian Murray Beames sworn 11 July 1997
Amanda Poli sworn 7 July 1997
Shelley Dianne Blackwell sworn 11 July 1997
Amanda Poli sworn 22 January 1998
John Asikas sworn 3 February 1998
Geoffrey Dunstan sworn 20 February 1998
Jean Mavis Balnaves sworn 24 February 1998
John Charles Parsons sworn 24 February 1998
Andrew Luckhurst-Smith sworn 4 March 1998
Amanda Poli sworn 18 March 1998
Jean Mavis Balnaves sworn 4 May 1998
Frederick William Biggs sworn 31 July 1998
Frederick Graham Moir undated
Andrew William Shaw sworn 2 August 1998
Robert Simionato sworn 31 July 1998
The affidavit of Robert Simionato was admitted save and except for the sentence in the third, fourth and fifth lines on page 3. Although one or two parties gave notice of an intention to cross-examine deponents to affidavits, in the result no party pursued that intention. In addition, two documents were tendered by consent. They were mortgage registered number 8101882 between Cummings Corporation and Gosbond Pty Ltd and a letter dated 11 September 1996 from Antonio Tropeano to Peter Balnaves. Finally, it was an agreed fact that a caveat lodged by Mr Burton 10 April 1997 had been warned by the Registrar-General and, in the absence of any step by Mr Burton to uphold the caveat, it had been removed on 13 May 1997.
Rymill House is Sold
It is necessary to go back to August 1995 to understand how the separate claims arise.
On 2 August 1995 Melbourne Projects Pty Ltd (“Melbourne Projects”) entered into an agreement in writing to purchase Rymill House from EFG Finance Ltd for $900,000. On the same day, Melbourne Projects paid the sum of $90,000 to EFG Finance as a deposit. The contract was to be completed on 15 September 1995.
Melbourne Projects did not complete the contract. On 17 October 1995, after the date for completion of the contract had passed, Melbourne Projects entered into an agreement with Cummings Corporation. The agreement was negotiated by Mr Robert Simionato, a director of Melbourne Projects, and Peter Balnaves on behalf of Cummings Corporation. The agreement was not reduced to writing. The only evidence of the agreement is contained in an affidavit of Mr Simionato. The effect of his evidence is that Cummings Corporation agreed that it would take over the rights and liabilities of Melbourne Projects under its contract with EFG Finance Ltd. It is not entirely clear whether the contract was made with Cummings Corporation or with Peter Balnaves personally. However, according to Mr Simionato, Peter Balnaves said that he would put the land in his family trust. Cummings Corporation proceeded to purchase Rymill House and the loan is recorded in the minute book of Cummings Corporation. It is reasonable, therefore, to infer that the agreement was between Melbourne Projects and Cummings Corporation. According to Mr Simionato, Melbourne Projects agreed to lend Cummings Corporation the sum of $90,000, being the deposit it had paid to EFG Finance. The loan was to be repaid in one year’s time and was to be free of interest. Interest was to be charged if the loan was not repaid within 12 months. There is no evidence as to the rate of interest, the time from which it was to be computed, or the method of calculation of interest. The loan was not repaid by Cummings Corporation within the agreed period of 12 months.
On 16 September 1996 Mr Antonio Tropeano, a solicitor acting for Melbourne Projects, wrote to Peter Balnaves informing him that, if the loan was not repaid by 18 October 1996, Melbourne Projects would institute legal proceedings to recover the debt. The letter said that the loan was a personal loan. It reads:
“RE: PERSONAL LOAN
I advise that I have been instructed to act for Melbourne Projects Pty Ltd in relation to a personal loan of $90,000.00 received by you in the purchase of premises situated at 100 East Terrace Adelaide.
I have been instructed that the loan was for a duration of twelve months starting from the 17th October 1995 to the 17th October 1996. Therefore, it would be appreciated if you could make provision for the repayment of the loan by the due date.
My instructions in this matter are to issue legal proceedings and in particular a creditors statutory demand in the event that the said amount is not paid by the due date.”
It will be noticed that the letter does not refer to any agreement to secure repayment by mortgage. It proposes to enforce payment by legal proceedings. By this time Peter Balnaves was the trustee of the Balnaves Family Trust. The debt remained unpaid. On 5 November 1996 Melbourne Projects lodged a caveat protecting what it claimed to be an equitable interest in Rymill House. The interest claimed in the caveat was described in these terms:
“an estate in fee simple in some at present indefinable share or shares in the aforementioned land by virtue of having advanced funds to assist with the acquisition of the said land which is registered in the name of the abovementioned Peter John Balnaves”.
Notwithstanding the extraordinarily vague description of the asserted interest, the caveat was registered. In addition, Melbourne Projects instituted proceedings in the District Court to recover the debt due to it. I later examine the nature of the transaction between Melbourne Projects and Cummings Corporation.
Melbourne Projects is a company in a group of companies called “The Emanuel Group of Companies”. At least 27 companies in that group, including Addstead Pty Ltd, have been wound up by order of this Court. Mr Peter Macks has been appointed liquidator of Addstead Pty Ltd and the other 26 companies in the group. Addstead and those other 26 companies instituted proceedings in this court against other companies in the group including Melbourne Projects. On 6 June 1997 Lander J made an order declaring, among other things, that Melbourne Projects holds, pursuant to a constructive trust for Addstead and the other plaintiffs, the chose in action to recover the sum of $90,000 and the rights protected by the caveat lodged by Melbourne Projects. In this action, Mr Macks, as liquidator of Addstead, prosecuted the claim on behalf of Melbourne Projects.
I resume the narrative. On 18 October 1996 Cummings Corporation purchased and was registered as the proprietor of an estate in fee simple in Rymill House. Cummings Corporation had to borrow funds in order to be able to complete the purchase. The total amount required was in excess of $900,000. Cummings Corporation borrowed from several parties other than Melbourne Projects. I refer to three only at this stage. The first was a loan in the sum of $650,000 from a group of investors. That loan was secured by a registered first mortgage. The second was a loan from a company called Gosbond Pty Ltd in the sum of $50,000. That loan was secured by a registered second mortgage. Thirdly, on 18 October 1995, Cummings Corporation borrowed $200,000 from JAD International Pty Ltd (“JAD”). The circumstances of this loan are unusual and highly irregular. Repayment of the loan was secured by an unregistered mortgage.
The Loan by JAD
Since about 1984 Peter Balnaves had acted as the accountant for a group of companies which included JAD and Starstripe Investments Pty Ltd (“Starstripe”). Mr John Asikas is a director and shareholder of both companies. Since 1984 Peter Balnaves has also acted as accountant for Mr Asikas. JAD carries on business as a reseller of trucks. From time to time Starstripe has made advances to JAD on a commercial basis in the course of its business. Before 18 October 1995 Starstripe had obtained from Citibank Limited (“Citibank”) a loan facility in the sum of $200,000 to enable it to make advances to JAD. Peter Balnaves, as the accountant for JAD and Starstripe, had the authority to draw on the loan facility. On 18 October 1995 Peter Balnaves drew three bank cheques totalling $200,000 from Citibank. Those cheques were made out to EFG Finance, the Commissioner of Stamps, and the Registrar-General of Deeds for the sums of $161,640, $34,830 and $3,530 respectively. These cheques were applied as part payment of the purchase price, stamp duty and registration fees on the purchase of Rymill House.
Peter Balnaves did not immediately inform Mr Asikas that he had arranged this loan from JAD to Cummings Corporation. Peter Balnaves’ conduct was highly irregular. There is insufficient evidence to establish whether it was unlawful. Peter Balnaves informed Asikas of the transaction a day or two after 18 October. He informed Asikas that Cummings Corporation would grant JAD a second mortgage to secure repayment of the debt of $200,000 together with interest. It seems Peter Balnaves failed to mention the existing second mortgage. Asikas insisted that the arrangement be formalised in writing. Peter Balnaves wrote a note to the effect that Cummings Corporation would repay the debt on the sale of Rymill House. However, Mr Asikas is unable to produce the note. His office was later substantially destroyed by fire and he is now unable to locate the document. In the course of the same conversation, Peter Balnaves informed Asikas that he intended to resell Rymill House within a couple of months; that Cummings Corporation would repay the debt upon the resale; and that, in the meantime, Cummings Corporation would pay direct to Citibank interest on the loan at the rate of 12 per cent per annum. Thus, the funds for the purchase of Rymill House had come from four sources, namely,
Melbourne Projects (loan for deposit) $ 90,000
Citibank via JAD $200,000
First mortgagees $650,000
Second mortgagee $50,000$990,000
Cummings Corporation contributed nothing to the purchase price.
At some time before Christmas 1995, Peter Balnaves informed Asikas that Cummings Corporation had been unable to sell Rymill House as planned. Peter Balnaves agreed that Cummings Corporation would execute a second mortgage immediately. Soon after, he provided Asikas with a memorandum of mortgage executed by Cummings Corporation backdated to 18 October 1995. Asikas asked the solicitor for Peter Balnaves to register the mortgage but it was never registered.
According to Mr Asikas, Peter Balnaves had a number of different plans for Rymill House and mentioned them to him at different times during 1996. It is unnecessary to relate all of those different plans as none of them eventuated. One of those plans was to repay part of the debt due to JAD by a loan of $150,000 derived from the proceeds of the sale of the house owned by Mrs Balnaves. As will be seen, the loan by JAD was not repaid.
JAD’s Second Advance
In December 1996 Peter Balnaves informed Asikas that he would borrow funds from another lender in order to repay the debt to JAD. He asked if JAD would advance the cost of the loan procurement fee. JAD agreed and lent Peter Balnaves, as trustee of the Balnaves Family Trust, the sum of $10,000. The purpose of the advance was to enable Peter Balnaves to pay the loan procurement fee and to obtain the loan which could repay the debt. Soon after, Peter Balnaves told Asikas that he could not raise the funds to repay the moneys due to JAD and could not repay the advance of $10,000. Thus, the total liability of the Balnaves Family Trust to JAD was increased to $210,000 plus interest.
Clause 28 of the mortgage granted by Cummings Corporation to JAD provides that the mortgagee may advance moneys to the mortgagor on the security of the mortgage and that payment of all moneys advanced and interest thereon will be a charge upon the land secured by the mortgage. This further advance of $10,000 was tacked by JAD to the mortgage without notice of any subsequent mortgage. JAD was, thus, entitled to insist on payment of the further advance, as well as of the initial advance, and interest on both sums: Hopkinson v Rolt (1861) 9 HLC 514; Bradford Banking Co Ltd v Henry Briggs, Son & Co Limited (1886) 12 App Cas 29.
The Burton Claim
The next event giving rise to a claim for an equitable interest occurred on 16 February 1996, when Mr William Burton lent $20,000 to Cummings Corporation, Peter Balnaves and Mr T J Harper. The loan is evidenced by a loan agreement executed by all of the parties and dated 16 February 1996. Repayment of the loan was secured by, among other things, a mortgage, which was executed by Cummings Corporation. The mortgage is undated. It is attached to the loan agreement. I infer that it was executed on 16 February 1996. The mortgage was not registered. Although the loan agreement states that the loan was to be repaid on 15 May 1996, the loan has not been repaid. Mr Burton instituted proceedings against Peter Balnaves in the Adelaide Magistrates Court to recover the debt due to him. On 19 January 1997 he obtained judgment. Peter Balnaves instituted an appeal from that decision. The appeal has not been prosecuted. I am, however, satisfied that the loan was made.
On 10 April 1997 Burton lodged with the Registrar-General a caveat over the certificate of title of Rymill House protecting his equitable interest in the land pursuant to his equitable mortgage. The caveat described the interest he claimed in these terms:
“an estate or interest as equitable mortgagee or chargee by virtue of which the Caveatee charged the estate and interest of the Caveatee in the said land pursuant to Agreement dated the 16/2/96 to secure the repayment of the debt owed by the Caveatee to the Caveator”.
This caveat was warned by the Registrar-General. Mr Burton did not seek to uphold the caveat. On 13 May 1997 the caveat was removed. Mr Burton died in October 1997. His claim is being prosecuted by his widow on behalf of his estate.
On 10 July 1997 Mr Burton lodged a creditor’s petition in the Federal Court of Australia pursuant to the Bankruptcy Act 1966 seeking to have Peter Balnaves declared bankrupt. In his petition he referred to the mortgage over Rymill House but asserted that it had no value. Mr Burton did not, in his petition, state whether he was willing to surrender his security for the benefit of the creditors generally: see s44(3) of the Bankruptcy Act. There is no evidence whether a sequestration order has been made or, if so, whether the trustee in bankruptcy has ordered Mr Burton to surrender his security of the creditors generally: see s44(5) of the Act. There is no rule in bankruptcy that a petitioning creditor who omits in his petition either to give an estimate of the value of his security or to state that he will be ready to give up his security for the benefit of the creditors in the event of his death or being adjudicated bankrupt thereby forfeits the benefit of his security: Moor v Anglo-Italian Bank (1879) 10 Ch.D. 681 at 689-690. Equally, the secured creditor does not elect to give up his security by the mere act of lodging a petition: Moor v Anglo-Italian Bank (supra) at 690. The question whether Mr Burton should be required to elect is a matter to be resolved in the administration of the bankruptcy once a sequestration order has been made: see Moor v Anglo-Italian Bank at 689-690. It is not a matter which affects the existence of the equitable interest or its priority over other interests.
Refinancing is Arranged
On 30 May 1996 Peter Balnaves made new financing arrangements on behalf of the Balnaves Family Trust. He borrowed $820,000 from Elderly Citizens Homes and discharged the debts due to the first and second registered mortgagees. Elderly Citizens Homes became registered as the first mortgagee. There is no evidence to show how the sum of $820,000 was applied. I infer that a substantial part of that sum was to repay principal and interest on the loan secured by the first and second mortgages. There is no evidence to show how much was required to do so.
The Parsons Loans
On 1 July 1996 Mr J C Parsons lent to Peter Balnaves the sum of $50,000. It was to be the first of three loans made by Parsons to Peter Balnaves. The other loans were each of $10,000 made on 30 June 1997 and 18 September 1997 respectively. Parsons regarded the loans as an act of goodwill to a friend who was in financial difficulty. There is no loan agreement. Repayment of the loans was secured by a mortgage dated 5 November 1997. The mortgage was not registered. However, on 11 November 1997 Parsons lodged with the Registrar-General a caveat over the title of Rymill House claiming an interest in the land in the sum of $50,000. The caveat describes the interest in these terms:
“an estate and interest as Mortgagee pursuant to a certain Memorandum of Mortgage dated 5/11/97 made between the said Caveatee and Caveator securing the sum of Fifty Thousand Dollars ($50,000)”.
Although the first loan to Peter Balnaves by Mr Parsons was made on 1 July 1996, it was not until 5 November 1997 that Mr Parsons obtained from Peter Balnaves a mortgage securing repayment of that loan and the two later loans made on 30 June 1997 and 18 September 1997. There is no agreement, oral or in writing, pursuant to which Peter Balnaves agreed to enter into a mortgage to secure repayment of these loans. Thus, Parsons did not acquire any equitable interest in the land until the execution of the mortgage on 5 November 1997.
JAD Lodges a Caveat
The next relevant event occurred on 15 July 1997 when JAD lodged with the Registrar-General a caveat protecting its equitable interest under its equitable mortgage. The caveat described the interest it claimed in these terms:
“an estate in fee simple in the said land as chargee under and by virtue of an agreement dated 18 October 1995 between the caveator and Cummings Corporation Pty Ltd the then trustee of the Balnaves Family Trust, Peter John Balnaves having subsequently been appointed as a new trustee of the Balnaves Family Trust whereby Cummings Corporation Pty Ltd charged all its rights title interest and estate in the said land with the payment of the moneys therein described which moneys now total $212,000”.
When that caveat was lodged, the only other registered interests which were still extant were the first mortgage to Elderly Citizens Homes and the caveat lodged by Melbourne Projects. JAD has not proved that it searched the certificate of title. I find that it did not.
An Order for Possession
It was not long before Peter Balnaves was in default under the first mortgage to Elderly Citizens Homes. On 13 August 1997 Elderly Citizens Homes obtained an order for possession of Rymill House. The order was served personally on Balnaves on 22 August 1997. As will be seen, Balnaves did not inform all of those with whom he dealt of the order for possession.
Moir Management Contracts to Purchase Rymill House
It appears that, in mid-1997 and notwithstanding the order for possession, Peter Balnaves was seeking a purchaser for Rymill House. In September 1997 he commenced negotiations with F. Moir Management Services Pty Ltd (“Moir Management”). On 25 September 1997 Peter Balnaves and Moir Management entered into an agreement in writing by which Peter Balnaves agreed to sell and Moir Management agreed to buy Rymill House for $1,300,000. It was a term of the contract that Moir Management would pay a non-refundable deposit of $100,000. On 29 September 1997 the parties amended the contract by deleting the clause which provided that the deposit was not refundable. The effect of the contract as amended was that the deposit would be refundable by Peter Balnaves as vendor if he could not complete the sale. On 29 September 1997 Moir Management paid the deposit of $100,000. At no time did Peter Balnaves or his solicitors disclose to Moir Management the fact that Elderly Citizens Homes had obtained an order for possession of Rymill House as mortgagee.
The agreement for sale and purchase between Moir Management and Peter Balnaves was to be completed on 22 December 1997. On 29 September 1997 Moir Management lodged with the Registrar-General a caveat over the title for Rymill House protecting its equitable interest in the land under the sale and purchase agreement. The caveat described the interest in these terms:
“the caveator claiming an estate or interest in fee simple as purchaser of the fee simple under and by virtue of a certain written agreement dated the 22nd day of September 1997 (as amended) between the caveator and caveatee”.
Before entering into the agreement, Moir Management had searched the certificate of title. The search disclosed the mortgage to Elderly Citizens Homes and the caveats lodged respectively by Melbourne Projects and JAD. However, it did not disclose the fact that Mr Burton had lodged a caveat on 10 April 1997 and that caveat had been removed. Although the practice currently adopted in the Lands Titles Office in relation to the searching of title was not proved, it appears from the documents before me that the computerised system of searches currently available does not list all the endorsements registered on the title. Thus, in those instances where a caveat has been lodged and withdrawn and the search is conducted after the caveat has been withdrawn, the search will not disclose either the registration of the caveat or its withdrawal or removal. This is in marked contrast to the old method of searching a title, when the searcher was able to examine the original certificate of title and inspect all of the registered endorsements and even pencilled notations on the title. It seems that if a complete record of all endorsements is required, it is necessary to request what is called an “historical search” of the certificate of title. Moir Management did not request an historical search. There is no reason which required it to do so. It sought only to be informed of those interests when registered on the title.
Elderly Citizens Homes Sells Rymill House
On 4 November 1997 Elderly Citizens Homes took possession of Rymill House pursuant to the order it had obtained on 13 August 1997. Moir Management entered into negotiations with other parties seeking to sustain its interest as purchaser. These negotiations did not lead to any result. On 8 December 1997 Moir Management delivered an executed transfer to Peter Balnaves for execution by him as vendor. By reason of the entry into possession by Elderly Citizens Homes, Peter Balnaves had no interest he could transfer to Moir Management except with the consent of Elderly Citizens Homes. On 16 December 1997 Elderly Citizens Homes sold Rymill House by public auction. Thus, Peter Balnaves, as trustee of the Balnaves Family Trust was unable to complete the contract to sell Rymill House to Moir Management. Moir Management took all steps to require completion. Balnaves could not complete. By reason of the default of Balnaves, the deposit was refundable to Moir Management.
As the purchaser of land under a contract which had failed through no fault on its part, Moir Management had a lien on Rymill House for the deposit it had paid: Rose v Watson (1864) 10 HLC 672 at 678; Re Gray (1949) 15 ABC 49; Ex Parte Lord [1985] 2 Qd R 198; Hewett v Court (1983) 149 CLR 639 at 645, 654, 664. The lien is similar in nature to that of an unpaid vendor. The question whether the purchaser is a secured creditor depends on whose default has caused the contract to go off. In this case, Peter Balnaves, as vendor, was in default. Moir Management was, therefore, a secured creditor in respect of the purchase moneys it had paid: Cornwall v Henson [1899] 2 Ch 710 at 714; Whitbread & Co Ltd v Watt [1901] 1 Ch 911 at 913-915; Combe v Swaythling [1947] Ch 625; Hewett v Court (supra) at 645, 654. The lien extends to the purchase money paid as well as to interest thereon and the costs properly incurred by the purchaser: Rose v Watson (supra).
The Claim by Mrs Balnaves
Mrs Balnaves has lent her son, Peter Balnaves, a sum in excess of $150,000. She has sworn an affidavit in which she states that on 18 October 1995 she agreed to lend Cummings Corporation the sum of $150,000. Repayment of the loan was to be secured by a mortgage over Rymill House. Mrs Balnaves had already lent $1,000 on 1 October 1995. However, she did not lend any further sums until 1997. At some time prior to May 1997 she had sold her house property and on 9 May 1997 she lent Peter Balnaves $100,000. On 20 June 1997 she lent him a further $32,520 and on 14 July 1997 a further $21,871. In all, Mrs Balnaves has lent her son $155,391. I am satisfied that all of these loans were made to Peter Balnaves in his capacity as trustee of the Balnaves Family Trust.
In an affidavit sworn on 24 February 1998 Mrs Balnaves stated that on 18 October 1995 she had executed a mortgage securing a loan of $150,000. The mortgage document executed by her states that the loan was made on 18 October 1995. The mortgage is dated 18 October 1995. The evidence of Mrs Balnaves in that affidavit was plainly wrong. Mrs Balnaves, or those advising her, decided to correct her evidence. In an affidavit sworn on 4 May 1998 she retreats from her position and states that she had become aware that the mortgage exhibited to her affidavit sworn on 24 February 1998 was incorrectly dated. She states that the mortgage was executed in November 1997 and not on 18 October 1995. She does not, however, state when in November 1997 the mortgage was executed. In her second affidavit Mrs Balnaves adds that, since swearing her affidavit on 24 February 1998, she has also become aware that, through oversight, her first affidavit failed to refer to another mortgage granted to her by Peter Balnaves. This other mortgage also secured the sum of $150,000 which had been secured by the earlier mortgage. Although the other mortgage is dated 1 April 1997, Mrs Balnaves says that she now believes that it was executed in November 1997. She is unable to ascribe a date to the execution of the mortgage. In the course of the hearing, she said, through her counsel, that it was executed after the mortgage in favour of Mr Parsons.
Mrs Balnaves was not cross-examined. However, it is clear that it is not possible to rely on her evidence. It is apparent that she, along with others, has been duped into lending money to her son without any real security. The dates of execution of the mortgage documents on which she relies are plainly wrong. The mortgage documents also incorrectly state the date on which the sum of $150,000 was lent. The mortgage bearing date 1 April 1997 has not been stamped. Finally, Mrs Balnaves is unable to state when in November 1997 the mortgages were executed. These mortgage documents have all the hallmarks of an eleventh-hour attempt to shore-up the position of Mrs Balnaves as a secured creditor at the time when Elderly Citizens Homes was selling Rymill House as first mortgagee. At best, her evidence is that she executed these mortgage documents in November 1997 at some time after the execution by Mr Parsons. There is no evidence of any agreement, oral or in writing, pursuant to which Peter Balnaves agreed to enter into a mortgage to secure repayment of these loans by his mother. Thus, Mrs Balnaves did not acquire any equitable interest in Rymill House until the execution of the mortgage at some time in November 1997.
The Order of Priorities
With that background, I turn to examine the order of priorities. Before doing so, it is necessary to note s135 of the Real Property Act 1886 which provides how the proceeds of a sale by a first mortgagee are to be applied. It provides:
“The purchase-money to arise from the sale of any such land shall be applied: First - In payment of the expenses occasioned by such sale: Secondly - In payment of the moneys which may then be due or owing to the mortgagee or encumbrancee: Thirdly - In payment of subsequent mortgages or encumbrances, if any, in the order of priority: and the surplus, if any, shall be paid to the mortgagor or encumbrancer, as the case may be.”
There is no registered mortgage other than the first mortgage. All of the claims for the proceeds remaining after the first mortgagee has been repaid are grounded on equitable interests. Although, by reason of the terms of s135, Peter Balnaves is entitled to the proceeds remaining, his entitlement is subject to whatever equitable interests exist in Rymill House. Peter Balnaves has not disputed any of the claims which are made and has not opposed the payment into court or the determination of the claims. In effect, he consents to the court determining the order of priorities and for payment out to those parties who have priority. This approach is consistent with that adopted by Young J in Avco Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679 and in Hope v Hope [1977] 1 NZLR 582.
Melbourne Projects - No Equitable Interest
The first interest to be created was that of Melbourne Projects. It claims to rank pari passu with JAD. Its claim for priority is advanced on two grounds. The first is that Melbourne Projects has an equitable interest in the form of an unpaid vendor’s lien in Rymill House. It is well established that an unpaid seller of personal estate has a lien for the unpaid purchase money in the same way as an unpaid vendor of real estate has a lien for the unpaid purchase money, and that lien gives rise to an equitable interest in the personalty: Davies v Thomas [1900] 2 Ch 462 and In Re Stucley (1996) 1 Ch 67. The lien is not a mere personal equity but creates a charge upon and an interest in the property sold in the same manner as if that charge had been in writing: Rose v Watson (1864) 10 HLC 672 at 683 (11 ER 1187 at 1192) and Re Stucley (supra) 79 at 83.
Although there is no document recording the transaction between Melbourne Projects and Cummings Corporation, the legal effect of the transaction was that Melbourne Projects assigned to Cummings Corporation its interest in the contract with EFG Finance for the purchase of Rymill House in consideration for Cummings Corporation agreeing to pay the deposit of $90,000. As Cummings Corporation was unable to pay the sum of $90,000, Melbourne Projects then agreed that it would lend that sum to Cummings Corporation. Melbourne Projects had been unable to complete its contract to purchase Rymill House. There is no evidence whether Melbourne Projects was liable to forfeit its deposit because of its failure to complete the contract. It is reasonable to infer, as I do, that it was.
The claim by Melbourne Projects that it has an unpaid vendor’s lien in Rymill House is grounded on a false premise. In truth, what Melbourne Projects assigned to Cummings Corporation was its interest in the contract to purchase Rymill House, not an equitable interest in Rymill House. Although the contract to purchase Rymill House gave Melbourne Projects an equitable interest in Rymill House which would become a legal interest on completion of the contract, Melbourne Projects would forfeit that equitable interest if it failed to complete the contract. In October 1995 Melbourne Projects had failed to complete the contract and was unable to do so. It was liable to forfeit its equitable interest in Rymill House and forfeit its deposit. Thus, all that Melbourne Projects was able to assign was its interest in the contract to purchase Rymill House. On taking the assignment of the contract, Cummings Corporation became entitled to the equitable interest in Rymill House and Melbourne Projects ceased to have any equitable interest in Rymill House. Knowing that Cummings Corporation did not have the funds to pay $90,000 for the assignment of the contract, Melbourne Projects agreed to lend that sum to Cummings Corporation. Whatever interest Melbourne Projects might have had as an unpaid seller vis-a-vis Cummings Corporation, it did not have any interest in Rymill House. If Melbourne Projects wished to secure repayment of the loan it had made, it had to do so by way of a mortgage but it failed to obtain even an agreement for mortgage. For these reasons, Melbourne Projects does not have an equitable lien in Rymill House as an unpaid vendor.
Melbourne Projects contended in the alternative that it had a lien in Rymill House because it had contributed to the purchase price. It relied on the decision in Thurstan v Nottingham Permanent Benefit Building Society [1902] 1 Ch 1, affirmed [1902] AC 6. But that is a case on its own special facts relating to a contract by an infant to purchase land.
The issue then remains whether Melbourne Projects has any priority by reason of the caveat it lodged on 5 November 1996. Neither Cummings Corporation nor Peter Balnaves, as trustee for the Balnaves Family Trust, has executed a mortgage securing repayment of the loan. There is no memorandum in writing evidencing the lending arrangement. At best, Melbourne Projects has an oral promise to repay the debt and an oral promise to execute a mortgage. Thus, Melbourne Projects does not have either an agreement in writing to secure repayment of the loan by Melbourne Projects or a written memorandum to that effect which would satisfy s26 of the Law of Property Act 1936. Nor is Melbourne Projects able to rely on the doctrine of part performance as evidence of an agreement to grant a mortgage: see s26(2) of the Law of Property Act. In order to rely on that doctrine, Melbourne Projects must be able to show that the fact that Cummings Corporation had the benefit of the deposit of $90,000 paid by Melbourne Projects to EFG Finance was unequivocally and in its own nature referable to some contract of the general nature as that alleged by Melbourne Projects: Regent v Millett (1976) 133 CLR 679 at 683 per Gibbs CJ. The test in Steadman v Steadman [1976] AC 536 may be more liberal than that stated in Regent v Millett: see the discussion by Hill J in ANZ Banking Group Ltd v Widin (1990) 102 ALR 289 at 301-305. But it is unnecessary in the present case to explore that issue since there is no evidence of any act of part performance. All that has been proved is that Melbourne Projects allowed Cummings Corporation to have the benefit of the sum of $90,000 which Melbourne Projects had paid to EFG Finance as a deposit. The loose nature of the arrangements between the parties does not indicate unequivocally that Cummings Corporation was to grant Melbourne Projects a mortgage to secure repayment of the loan of $90,000. The fact that the letter from Mr Tropeano states that the loan was a personal loan and does not refer to a mortgage reinforces that conclusion. Peter Balnaves had all kinds of schemes in mind. He could have made any number of proposals to Simionato, either on or about 18 October 1995 or at some later date. Melbourne Projects is the author of its own misfortune. It could have prepared a mortgage for execution by Cummings Corporation and, after it had been executed, registered it. Melbourne Projects has, therefore, failed to demonstrate that it had an equitable mortgage or, indeed, an equitable interest. All that it has done to protect its interest is to lodge the caveat on 5 November 1997, asserting in the vaguest of terms its equitable interest. However, for the reasons already given, it has failed to show that it has any equitable interest in Rymill House. Melbourne Projects had no caveatable interest.
As Melbourne Projects has no equitable interest in Rymill House, it is not entitled to any part of the fund in court.
The Relevant Principles
The starting point for determining the priority of competing interests in property is the principle that the interest created earlier in time is entitled to priority if the merits are equal. As that principle applies only if the merits are equal, it follows that the holder of an equitable interest created before a later equitable interest may lose priority if the merits are unequal and favour the later interest. These principles were re-stated in Abigail v Lapin (1934) 51 CLR 58; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550 and Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326. Thus, Kitto J observed in Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (supra) at 276:
“In all cases where a claim to enforce an equitable interest in property is opposed on the ground that after the interest is said to have arisen a third party innocently acquired an equitable interest in the same property, the problem, if the facts relied upon as having given rise to the interest be established, is to determine where the better equity lies. If the merits are equal, priority in time of creation is considered to give the better equity. This is the true meaning of the maxim qui prior est tempore potior est jure: Rice v Rice (1853) 2 Drew. 73 at 78 (61 ER 646 at 648). But where the merits are unequal, as for instance where conduct on the part of the owner of the equitable interest has led the other to acquire his interest on the supposition that the earlier did not exist, the maximum may be displaced and priority accorded to the later interest.”
This principle was re-stated in the same terms by Mason and Deane JJ in Heid v Reliance Finance Corporation Pty Ltd (supra) at 339.
In this case, those who lodged a caveat rely on that fact to establish priority and those who acquired interests after Mr Burton assert that he has lost his priority by his failure to register his mortgage and his failure to defend the caveat he had lodged after it had been warned. It is, therefore, necessary to examine the weight to be given to the lodging of a caveat and its subsequent removal.
The consequences of a failure to lodge a caveat have been the subject of a great deal of writing both in judicial decisions and academic articles, particularly since the decision in Butler v Fairclough (1917) 23 CLR 78. Some decisions and articles are listed in an appendix to these reasons. It is now well established that a failure to lodge a caveat does not, standing alone, necessarily defeat a prior equity: J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 per Barwick CJ at 555 and Windeyer J at 557-559. Equally, the holder of an equitable interest cannot improve his priority by lodging a caveat: Butler v Fairclough (1917) 23 CLR 78 at 84. The caveat does not enlarge or add to the existing rights of the caveator. It simply protects them. Thus, a mortgagee who lodges a caveat does not necessarily secure a de facto registered mortgage. It is necessary to have regard to all of the facts and to determine whether the failure by the holder of the prior equity to lodge a caveat has, in all the circumstances, conduced or contributed to a belief on the part of the holder of the subsequent equity that the prior equity did not exist. Ultimately, it must always be remembered that the task is to determine whether the conduct of the holder of the earlier interest has caused the creation of the later interest and regard must be had to all relevant circumstances including the behaviour of the claimants.
Thus, in J & H Just (Holdings) Pty Ltd v Bank of New South Wales at 554-555, Barwick CJ (with whom McTiernan and Owen JJ agreed) cited with approval observations of Knox CJ and Dixon J in Lapin v Abigail (1930) 44 CLR 166. Knox CJ said (at 183-184):
“The possessor of the prior equity is not to be postponed to the possessor of a subsequent equity unless the act or omission proved against him has conduced or contributed to a belief on the part of the subsequent equity, at the time when he acquired it, that the prior equity was not in existence.”
Dixon J said (at 204):
“In general an earlier equity is not to be postponed to a later one unless because of some act or neglect of the prior equitable owner.
“In order to take away any pre-existing equitable right, that which is relied upon for such a purpose must be shown and proved by those upon whom the burden to show and prove it lies, and... it must amount to something tangible and distinct, something which can have the grave and strong effect to accomplish the purpose for which it is said to have been produced.” (per Lord Cairns LC, Shropshire Union Railways & Canal Co v The Queen (1875) LR 7HL at 507). The act or default of the prior equitable owner must be such as to make it inequitable as between him and the subsequent equitable owner that he should retain his initial priority. This, in effect, generally means that his act or default must in some way have contributed to the assumption upon which the subsequent legal owner acted when acquiring his equity.”
The approach to be adopted by the court has been considered in a number of instances. I refer to two. In Rice v Rice (1854) 2 Drew. 73, at 78-9; 61 ER 646 at 648, Kindersley V-C observed that:
“In examining into the relative merits (or equities) of two parties having adverse equitable interests, the points to which the Court must direct its attention are obviously these: the nature and condition of their respective equitable interests, the circumstances and manner of their acquisition, and the whole conduct of each party with respect thereto. And in examining into these points, it must apply the test, not of any technical rule or any rule of partial application, but the same broad principles of right and justice which a Court of Equity applies universally in deciding upon contested rights.”
At 83 (61 ER at 650), he continued:
“Indeed it appears to me that in all cases of contest between persons having equitable interests the conduct of the parties and all the circumstances must be taken into consideration, in order to determine which has the better equity.”
The principles to be applied were also examined by Mason and Deane JJ in Heid v Reliance Finance Corporation Pty Ltd (supra) at 339-342. At 342-343 they concluded:
It is preferable to avoid a reliance solely on the doctrine of estoppel and to accept a more general and flexible principle that preference should be given to what is the better equity in an examination of the relevant circumstances.
The question is whether, in fairness and in justice, the earlier interest should be postponed to the later interest.
In whatever form the relevant test be stated, the overriding question is “... whose is the better equity, bearing in mind the conduct of both parties, the question of any negligence on the part of the prior claimant, the effect of any representation as possibly raising an estoppel and whether it can be said that the conduct of the first or prior owner has enabled such a representation to be made...: Sykes, Law of Securities, 3rd ed, (1978) page 336; see also Dixon v Muckleston (1872) LR 8 Ch App at 160 and Latec Investments (supra) at 276.
Thus, regard must be had to both negligence and estoppel.
Fairness and justice demand that the primary enquiry be concerned with those acts during the carrying out of which it is reasonably foreseeable that a later equitable interest will be created and that the whole of that later interest will assume the non-existence of the earlier interest.
That principle was expressed in these terms (at 342):
“It may be that an equitable interest will not be postponed to an equitable interest created later in time merely because there is a causal nexus between an act or omission on the part of the prior equitable owner and an assumption on the part of the later equitable owner as to the non-existence of the prior equity. Fairness and justice demand that we be primarily concerned with acts of a certain kind - those acts during the carrying out of which it is reasonably foreseeable that a later equitable interest will be created and that the whole of that later interest will assume the non-existence of the earlier interest.”
The decision in J & H Just (Holdings) Pty Ltd v Bank of New South Wales qualified the absolute effect which Griffith CJ in Butler v Fairclough (1917) 23 CLR 78 at 90-91 had ascribed to the failure to lodge a caveat, namely, that a failure to do so should be regarded as inducing persons subsequently dealing with the registered proprietor to regard the title as clear of any outstanding equitable interest. However, at the risk of unnecessary repetition, it must be emphasised that none of the justices who decided J & H Just (Holdings) Pty Ltd v Bank of New South Wales held that the failure to lodge a caveat could not be a relevant factor. Barwick CJ acknowledged (at 553) that in certain circumstances it would be appropriate to lodge a caveat, and Windeyer J acknowledged that it was one way of protecting an equitable interest. He said (at 558):
“If a person intending to deal with a registered proprietor becomes aware of a caveat, it is notice to him of a claim that an interest is outstanding: and then caveat emptor; qui ignorare non debuit qued jus alienum emit. But a caveat is not the only way in which a purchaser from the registered proprietor can be made aware of the prior equitable claims of another person. It is merely one way, and no doubt a very sure way, in which such a claimant may protect his interest against its subversion by the registered proprietor in favour of another person.”
The principle was re-stated in these terms in Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 at 342:
“Thus, the mere failure of a holder of a prior equitable interest in land to lodge a caveat does not of itself involve the loss of priority which the time of the creation of the equitable interest would otherwise give (J & H Just (Holdings) Pty Ltd v Bank of New South Wales) notwithstanding that the person acquiring the later interest had, before acquiring that interest, searched the register book and ascertained that no caveat had been lodged. It is just one of the circumstances to be considered in determining that it is inequitable that the prior equitable owner should retain his priority.”
I respectfully agree with McLelland J in Person-to-Person Financial Services Pty Ltd v Sharari [1984] 1 NSWLR 745 at 748 that the word “necessarily” could be substituted for “of itself” in the opening line of the passage just quoted.
Since the decision in J & H Just (Holdings) Pty Ltd v Bank of New South Wales, there have been decisions in several States where the failure to lodge a caveat by the holder of an equitable interest has caused the postponement of that interest to an interest created later in time: see Osmanoski v Rose [1974] VR 523; Taddeo v Catalano (1975) 11 SASR 492; Clark v Raymor (Brisbane) Pty Ltd [1982] Qd R 479, affirmed [1982] Qd R 790; King v AGC (Advances) Ltd [1983] 1 VR 682; Person- to-Person Financial Services Pty Ltd v Sharari [1984] 1 NSWLR 745; Finlay v R & I Bank of Western Australia Ltd (1993) 6 BPR 13, 121; and Double Bay Newspaper Pty Ltd v A W Holdings Pty Ltd [1996] NSW Conv R 56041. Some of these decisions have relied to a greater extent than others on the decision in Butler v Fairclough. In other cases, for example, Jacobs v Platt Nominees Pty Ltd [1990] VR 146, the reliance which can be placed on Butler v Fairclough has been doubted. I do not think it necessary to seek to reconcile all of these decisions. It is sufficient to note that the enquiry requires regard to be had to all relevant circumstances.
It has been held that the effect of a failure to lodge a caveat will depend on whether it is established that the general practice of competent and reasonable solicitors is to lodge a caveat in all cases and whether a person dealing with the registered proprietor will invariably search the title for the purpose of discovering any prior claims to interest in the land: see Jacobs v Platt Nominees Pty Ltd at 158 and Person-to-Person Financial Services Pty Ltd v Sharari at 748-749. There is no evidence as to conveyancing practice in this State but I do not think that it can now be doubted that in this State it is accepted that it is the practice of reasonably competent solicitors and landbrokers to lodge a caveat as soon as reasonably possible to protect an equitable mortgage, and that it is a common practice to do so. Similarly, I do not think it can now be doubted that in this State it is an accepted practice of reasonably competent solicitors and landbrokers to search a certificate of title before dealing with a registered proprietor or any other person who claims an interest in the subject land. For these reasons, I do not think the absence of evidence of conveyancing practice is material.
In this case, those who acquired equitable interests after Mr Burton assert that he has lost his priority by his failure to register the mortgage and his failure to defend the caveat after it had been warned. It is reasonable to infer from the fact that he lodged the caveat that Mr Burton was aware that it was desirable to take some step to seek to protect his interest. He then had solicitors acting for him. There is no explanation why he did not register the mortgage. The caveat gave notice to those searching the title of the existence of a claim for an equitable interest in the land as equitable mortgagee: see Windeyer J in J & H Just (Holdings) Pty Ltd v Bank of New South Wales (supra) at 558. The act of withdrawing the caveat gave notice that Mr Burton no longer sought to protect that interest. All that would be apparent to a person who searched at the Lands Titles Office was that the caveat had been lodged and later removed. That person would not know the reason why the caveat had been removed. The person searching the title would be entitled to assume that one reason why Mr Burton had failed to uphold the caveat was that the debt had been repaid. The lodging of the caveat puts a person searching the title on guard. The removal of the caveat indicates to those who subsequently search that the caveator no longer seeks to sustain the interest which the caveat had sought to protect. For these reasons, Mr Burton’s interest as equitable mortgagee was liable to be defeated by the holder of a subsequent interest who had searched and seen the registration of the caveat and its later removal.
However, in the particular circumstances of this case, the holders of the subsequent interests are not able to place the same reliance on the withdrawal of the caveat either because they did not search the title or because, at the time they searched, the caveat lodged by Mr Burton was no longer being disclosed by an ordinary search.
Four interests were registered after Mr Burton acquired his interest as equitable mortgagee on 16 February 1996. The first is the interest of JAD as equitable mortgagee. Mr Burton does not dispute that the interest of JAD ranks in priority to his interest as equitable mortgagee. The second is the interest of Moir Management as purchaser. As mentioned earlier, when Moir Management searched the certificate of title, there was no indication of any kind that the caveat had been lodged and later removed. The third and fourth interests were those of Mr Parsons and Mrs Balnaves. There is no evidence that either searched the title before making the loans to Balnaves and I find that they did not. I turn to examine the respective claims for priority of JAD, Mr Burton, Moir Management, Mr Parsons and Mrs Balnaves.
JAD’s Claim
All parties, other than Mr Parsons, acknowledge the claim of JAD for the sum of $210,000 and interest thereon. At first, Mrs Balnaves disputed the claim for the second advance of $10,000 but later withdrew her opposition to it. Mr Parsons says that JAD has no claim because the loan was made by Starstripe. I do not agree. The loan has been documented as a loan by JAD to Cummings Corporation. JAD no doubt has an obligation to repay Starstripe. But that is a matter to be resolved as between those two companies. I find that JAD lent $200,000 to Cummings Corporation on the terms set out in the memorandum of mortgage dated 18 October 1995.
I turn to the priority of JAD’s claim. No party claims an entitlement to priority ahead of the claim of JAD. Melbourne Projects claims to rank pari passu but, since it has no interest in Rymill House, it is not entitled to do so.
JAD lent $200,000 to Cummings Corporation on 18 October 1995. However, it did not obtain a mortgage securing repayment of the loan until about December 1995. Although the mortgage was back-dated to 18 October 1995, whatever priority is conferred by the execution of the mortgage cannot exist before its execution in December 1995. Fortunately for JAD, there is no other competing interest at about that time which makes it necessary to determine the precise date when the mortgage was executed. On 14 July 1997 JAD lodged a caveat to protect its interest under the mortgage. At that time, the only other registered interests were Elderly Citizens Homes as first mortgagee and the caveat lodged by Melbourne Projects. No event other than the equitable mortgage to Mr Burton has occurred which adversely affects the priority of JAD. However, Mr Burton does not dispute that JAD has a better equity. JAD, therefore, ranks in priority after Elderly Citizens Homes and, as Elderly Citizens Homes has been paid, it has the first entitlement to the proceeds of the sale of Rymill House.
For the reasons already given, JAD is entitled to tack on to its mortgage the sum of $10,000 lent in December 1996. Although the mortgage provides for payment of interest, the rate of interest is not prescribed in the mortgage. I will hear the parties on JAD’s claim for interest. The mortgage also provides that JAD, as mortgagee, is entitled to be paid all its costs incurred in enforcing its rights as mortgagee: see clause 30. JAD is, therefore, entitled to its costs in recovering its share of the proceeds of the sale of Rymill House. These costs will be paid from a common fund, namely, the fund paid into court by Elderly Citizens Homes. JAD is entitled to have its costs paid on a solicitor and client basis as taxed or agreed. The costs are not an indemnity and considerations of reasonableness apply: see Citibank Savings Ltd v Pirrotta (Full Court, 1 April 1998 Judgment No S6603) and Katsaounis v Belehris (1994) 179 LSJS 143.
The Burton Claim
The next equitable interest to be created was the mortgage granted to Mr Burton on 16 February 1996. The mortgage was not registered and so Mr Burton was at all times an equitable mortgagee. On 10 April 1997 he lodged a caveat but later permitted it to be removed. On 29 September 1997 Moir Management searched the title but its search did not disclose the fact that the caveat had been lodged and later removed. So far as Moir Management was concerned, the position is in effect the same as if Mr Burton had not lodged a caveat. In other words, in the particular circumstances of this case, Mr Burton should not be in a worse position than a person who has failed to lodge a caveat. It is appropriate to proceed on the footing of a deemed failure to caveat.
Mr Burton was clearly negligent in protecting his equitable interest. He did not register the mortgage. He did not hold the duplicate certificate of title and was thus unable to prevent later dealings. This last fact distinguishes this case from the decision in J & H Just (Holdings) Pty Ltd v Bank of New South Wales and like cases such as Avco Financial Services Ltd v Fishman [1993] 1 VR 90. His deemed failure to lodge a caveat has the consequence that it is open to others to deal in the land in a way which is adverse to his interest. It is reasonable to infer from the fact that he lodged a caveat that Mr Burton was aware of the need to protect his interest as mortgagee against subsequent interests. There was no reason why Mr Burton could not have at least registered a caveat giving notice of his interest as equitable mortgagee. His failure to do so encouraged Moir Management to enter into the contract to purchase Rymill House. Counsel for Mr Burton relied on the fact that there is no evidence that Moir Management would not have entered into this contract had it been alerted by a caveat to the existence of a mortgage in favour of Mr Burton. The affidavit evidence led by Moir Management goes no further than proving that searches were made before it executed the contract for sale and purchase. It was submitted that the purchase price of $1.3 million was sufficient to pay the debts then due to Elderly Citizens Homes as first mortgagee and to Melbourne Projects, JAD and Mr Burton as well as the interest on those debts. There will be cases where it can be shown that there is no causal connection between the failure to lodge a caveat and the creation of a later interest. An obvious example is where the holder of the later interest has not searched the title. But it cannot be assumed that Moir Management would have proceeded with the contract to purchase had it been aware of Mr Burton’s mortgage. There is no evidence to show whether the price of $1.3 million was sufficient to pay what was due to all those who had lodged caveats or who had registered an interest as mortgagee. Moir Management would be aware that it would need to obtain the consent of all mortgagees to the proposed purchase. In addition, it would not wish to expend funds in determining whether Melbourne Projects had a legitimate caveatable interest. For these reasons, I infer that the absence of a caveat or registered mortgage would have been a material factor which Moir Management would have considered before deciding to enter into the contract. The plain fact remains that the deemed failure of Mr Burton to lodge a caveat would lead to an assumption on the part of Moir Management that there was no other interest. Mr Burton or those advising him were negligent in failing to seek to uphold his caveat. That negligence was one factor which caused Moir Management to enter into the contract. For these reasons, the interest of Mr Burton must be postponed to that of Moir Management.
Different considerations apply in the case of the later interests of Mr Parsons and Mrs Balnaves. Neither of them searched the title. Thus, any failure on the part of Mr Burton to lodge a caveat or seek to uphold a caveat did not in any sense cause them to make the loans. As Mr Parsons said, he was simply helping a friend who was in financial difficulty. Similarly, it is reasonable to infer that Mrs Balnaves was assisting her son who she knew to be in financial difficulty. There is no reason why the equitable interest of Mr Burton should be postponed to the later interests of either Mr Parsons or Mrs Balnaves.
Mr Burton, therefore, ranks after Moir Management but ahead of Mr Parsons and Mrs Balnaves. He is entitled to recover the principal and interest provided in the mortgage. There is no evidence that the mortgage provided for recovery of costs in enforcing repayment. I will hear the parties on that issue.
Moir Management
Moir Management protected its equitable interest as the purchaser of Rymill House by the caveat it lodged on 29 September 1997. That caveat was lodged some five weeks before the caveats lodged by Melbourne Projects, Mr Parsons and Mrs Balnaves. As already noted, the mortgages securing repayment to Mr Parsons were not executed before 5 November 1997. The mortgage securing payment to Mrs Balnaves was executed some time later in November 1997. The next question is whether the equitable interest of Moir Management came into existence before the equitable interests of both Mr Parsons and Mrs Balnaves as equitable mortgagees.
The reason why a purchaser has an equitable lien was explained by Lord Cranworth in Rose v Watson (supra) at 683-684 in these terms:
“There can be no doubt, I apprehend, that when a purchaser has paid his purchase-money, though he has got no conveyance, the vendor becomes a trustee for him of the legal estate, and he is, in equity, considered as the owner of the estate. When, instead of paying the whole of his purchase-money, he pays a part of it, it would seem to follow, as a necessary corollary, that, to the extent to which he has paid his purchase-money, to that extent the vendor is a trustee for him; in other words, that he acquired a lien, exactly in the same way as if upon the payment of part of the purchase-money the vendor had executed a mortgage to him of the estate to that extent.”
Thus, the lien is acquired upon payment of the deposit and that lien is a charge upon the land. The purchaser is then in the position of a secured creditor. If the contract is completed, the equitable charge is extinguished. If the vendor defaults, the purchaser is entitled to rely on the charge and recover the deposit. For these reasons, I reject the argument advanced by Mrs Balnaves that the purchaser’s lien held by Moir Management did not come into existence until Peter Balnaves had failed to complete the contract. Moir Management became entitled to the benefit of its equitable lien on 29 September when it paid the deposit. The equitable interest of Moir Management was, therefore, created before the equitable interests of both Mr Parsons and Mrs Balnaves. Notice of that interest was given by the caveat lodged by Moir Management on 29 September. That interest ranks in priority to the interests of Mr Parsons and Mrs Balnaves.
The contract for sale and purchase provided that, upon default by the vendor, the purchaser was entitled to interest on the purchase price at a rate called the “default rate”, which is defined in the contract. Moir Management should not be entitled to recover interest upon any sum other than the deposit it had paid. It is implicit in the contract that it should be paid interest at the default rate. There remains the question as to the period for which it would be entitled to recover interest. In Rose v Watson that period was limited to a period of six months. I see no reason why a similar limitation should not be applied in the circumstances of this case. As purchaser, Moir Management is also entitled to recover its costs in recovering its deposit and interest thereon: Rose v Watson.
The Parsons and Balnaves Claims
Although it is most unlikely that any funds will remain to satisfy the claims by Mr Parsons and Mrs Balnaves, it is convenient to determine their claims for priority. Their respective interests as equitable mortgagees did not come into existence before 5 November 1997. They must, therefore, rank after all of the other interests. Mrs Balnaves concedes that the interest of Mr Parsons ranks ahead of her own. For the reasons already given, those interests do not rank in priority to any other interest.
The mortgages to Mr Parsons and Mrs Balnaves both provide for interest to be paid. The rates in each differ. Clause 24 of each mortgage provides that the mortgagee may recover the costs of enforcing payment. If funds are available after payment of prior claims, Mr Parsons and Mrs Balnaves may recover principal, interest and costs.
Conclusion
For these reasons, I dismiss the claim of Melbourne Projects. As to the remaining interests, I find that they rank in the order JAD, Moir Management, Mr Burton, Mr Parsons and Mrs Balnaves.
It is desirable that the parties attempt to agree the amount which is due and owing to each. Failing agreement, it will be necessary to consider whether it is desirable to appoint an accountant to calculate what is due and owing to each. It would be necessary also to consider whether the accountant should be appointed as a referee pursuant to Rule 76 or as an expert pursuant to Rule 82. I will hear the parties as to claims for interest and costs.
APPENDIX
Osmanoski v Rose [1974] VR 523
Taddeo v Catalano (1975) 11 SASR 492
Clark v Raymor (Brisbane) Pty Ltd (No2) [1982] Qd R 790
Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326
Person-to-Person Financial Services Pty Ltd v Sharari [1984] 1 NSWLR 745
Central Mortgage Registry of Australia Ltd v Donemore Pty Ltd [1984] 2 NSWLR 128
Cash Resources Pty Ltd v B T Securities Ltd [1990] VR 576
King v AGC (Advances) Ltd [1983] 1 VR 682
Avco Financial Services Ltd v White [1977] VR 561
Morris v Merbank Corporation Ltd [1984] 1 NZLR 552
Jacobs v Platt Nominees Pty Ltd [1990] VR 146
Avco Financial Services Ltd v Fishman [1993] 1 VR 90
Finlay v R & I Bank of Western Australia Ltd (1993) 6 BPR 13 232
Double Bay Newspapers Pty Ltd v A W Holdings Pty Ltd (1996) 42 NSWLR 409
Sackville, Competing Equitable Interests in Land Under the Torrens System (1971) 45 ALJ 396
Sackville, Competing Equitable Interests in Land Under the Torrens System -
A Postscript (1972) 46 ALJ 344
Sykes and Walker, The Law of Securities (5th ed) 464 to 471
Fisher & Lightwood’s Law of Mortgage (Australian Edition) (Tyler Young & Croft eds) paras 28.14-28.22
Meagher Gummow & Lehane, Equity Doctrines & Remedies (3rd ed) paras 801-818
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