Fei v Veritas Liberte Pty Ltd - [2022] SADC 41

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Interlocutory Application)
FEI v VERITAS LIBERTE PTY LTD
[2022] SADC 41
Judgment of his Honour Judge Burnett
1 April 2022
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - FORM AND CONTENT OF CAVEAT - NATURE OF ESTATE OR INTEREST CLAIMED
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - REMOVAL
EQUITY - GENERAL PRINCIPLES - RULES AND MAXIMS OF EQUITY - WHOEVER SEEKS EQUITY MUST DO EQUITY
EQUITY - GENERAL PRINCIPLES - EQUITABLE CHARGES AND LIENS - GENERALLY
The applicant is the owner of the properties at 7 and 9 Haigh Street Netherby (the Properties). Prior to the applicant purchasing the Properties, the respondent was itself interested in acquiring and developing the Properties. It could not, however, obtain finance to do so. The respondent approached the applicant with a proposal that the applicant purchase the Properties but that the respondent would pay all acquisition, holding and development costs associated with the Properties. On 28 May 2018 the applicant and the respondent entered into a Joint Venture Agreement (JVA) to that effect. The JVA required the respondent to make all repayments of the loan to be taken out to acquire the Properties. On the sale of the Properties, the respondent would receive 99% of the net profits and the applicant receive 1%. The proposed development involved subdividing the Properties into three separate allotments.
The applicant acquired the Properties on 26 June 2018. To do so, he obtained a loan from the NAB, secured by a mortgage over the Properties.
The respondent paid costs towards the acquisition, holding and development of the Properties up to March 2020 (including the mortgage payments), but in breach of the JVA has failed to make any payments at all since that date, including any mortgage payments.
Since March 2020 the applicant has paid the mortgage and all holding and development costs in relation to the Properties, which under the Joint Venture Agreement were payable by the respondent. In total the applicant has since that date paid the sum of $147,829.19 in respect of the mortgage, holding and development costs.
The applicant has entered into contracts for sale for each of the three subdivided allotments of the Properties to third parties. The applicant seeks repayment of the sum of $147,829.19 from the net proceeds of sale but otherwise does not seek any part of the profits (if any) on the sale.
The respondent has placed a caveat over the Properties and has claimed an interest as chargee pursuant to the Joint Venture Agreement dated 28 May 2018. The applicant has sought orders pursuant to s 191(1)(d) of the Real Property Act 1886 (the RPA) that the caveat be removed and that on settlement of the Properties the sum of $147,829.19 be paid to it, with the balance of the net proceeds to be paid into Court.
Held:
(1) The approach to an application for removal of a caveat under s 191(1)(d) of the RPA is the same approach as an application by the caveator to extend the time for removal of a caveat after it has been warned under s 191(1)(e)-(g) of the RPA. The onus is on the caveator in each case to show that the caveat should remain on the property. To do so, the caveator must satisfy the test for an interlocutory injunction: Stone v Leonardis & Anor [2011] SASC 153; (2011) 110 SASR 503 applied.
(2) The caveat must accurately describe the proprietary interest over the subject alleged to be held by the caveator: Union Finance Pty Ltd v Rateki Pty Ltd & Anor (No 2) [2007] SASC 11 applied. The respondent did not accurately describe its interest.
(3) The respondent does not have an equitable charge over the Properties. The Joint Venture Agreement does not demonstrate an intention to create an equitable charge: Taleb v National Australia Bank (2011) 82 NSWLR 489 and Complex Scaffolding Solutions Pty Ltd v Doueihi [2014] NSWSC 230 applied.
(4) The payment by the respondent of costs in acquiring, holding and developing the Properties would potentially give rise to a claim for a constructive trust over the Properties: Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 585 and Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 applied.
(5) The applicant has made mortgage payments and paid other costs relating to the holding and subdivision of the Properties. The respondent must accept those claims before it is entitled to the equitable remedy of a constructive trust. That is an application of the principle that he who seeks equity must do equity: Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 applied.
(6)     The respondent has not done equity in that it has not accepted the claims of the applicant and repaid the legitimate expenses of the applicant in holding the Properties.
(7)     The respondent has not established on the evidence any claims against the applicant in relation to the sale of the Properties or otherwise. In any event, the respondent could not take advantage of the remedy of a constructive trust without first defraying the costs of the applicant in paying the mortgage and other holding and development costs. Any claims against the applicant would be personal claims and could not be set off against the applicant’s claims for reimbursement of the mortgage and other costs.
(8)     The balance of convenience favours the applicant in that if the caveat is maintained over the Properties, the land division will not be able to proceed and the three sale contracts will be terminated. Mortgage and other holding costs will still accrue.
(9)     An order will made be made that the caveat be removed from the Properties and that upon sale of the Properties the net proceeds of sale be paid into Court after deduction of settlement costs, the sum required to discharge the mortgage and the sum $147,829.19 to be paid to the applicant in reimbursement of the costs that he has spent in paying the mortgage and other holding and development costs.
Real Property Act 1886 (SA) s 191(1)(d)-(g), referred to.
Stone v Leonardis & Anor [2011] SASC 153; (2011) 110 SASR 503; Union Finance Pty Ltd v Rateki Pty Ltd & Anor (No 2) [2007] SASC 11; Taleb v National Australia Bank (2011) 82 NSWLR 489; Complex Scaffolding Solutions Pty Ltd v Doueihi [2014] NSWSC 230; Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 585; Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137, applied.
Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198; Nexus Mortgage Securities v Mawson KLM Holdings and Starmaker (No 51) Pty Ltd (1997) 193 LSJS 474; ABC v O’Neill [2006] HCA 46; (2006) 227 CLR 57; Paringawood Nominees Pty Ltd v Baulderstone [1999] SASC 380; Beecham Group Ltd v Bristol Laboratories (1968) 118 CLR 618; Acmnet Pty Ltd v Al Tel Pty Ltd [2007] SASC 96; Psevdos v First Mortgage Company Home Loans Pty Ltd [2019] SASC 130; Caravan & General Finance Pty Ltd v Clearview Developments Pty Ltd (1976) 15 SASR 404; Roclin Investments Pty Ltd v Makris (1974) 7 SASR 485; Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1985] 1 Ch 207; National Provincial and Union Bank of England v Charnley [1924] 1 KB 431; Crampton v French [1996] ANZ Conv R 156; O’Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200; Cradock v Scottish Provident Institution (1893) 69 LT 380; Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952; Yaran Holdings Pty Ltd v Goldsmith 7 Pty Ltd [2014] WASC 171; Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393; Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623; Paul Fishlock v The Campaign Palace Pty Ltd [2013] NSWSC 531; Associated Newspapers Ltd v Bancks [1951] HCA 24; (1951) 83 CLR 322; Hoad v Swan (1920) 28 CLR 258; British & Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48; Rawson v Hobbs (1961) 107 CLR 466; Galafassi v Kelly (2014) NSWLR 119; [2014] NSWCA 190; Heyman v Darwins Ltd [1942] AC 356; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; Timothy Neil McQueen v Leduva Pty Ltd [2008] NSWSC 284; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; Foran v Wight (1989) 168 CLR 385; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; Fitzgerald v Masters (1956) 95 CLR 420, considered.

FEI v VERITAS LIBERTE PTY LTD
[2022] SADC 41

Introduction

The applicant in these proceedings is the owner of the properties at 7 and 9 Haig Street, Netherby, being the land contained in Certificate of Title Volume 5507 Folio 453 and Certificate of Title Volume 5507 Folio 315 respectively (the Properties).
The respondent, Veritas Liberte Pty Ltd (Veritas) has placed a caveat over the Properties claiming an interest as chargee pursuant to an agreement dated 28 May 2018. That agreement was a joint venture agreement between the applicant and Veritas relating to the acquisition, holding and development of the Properties.
The applicant, by originating summons, has sought orders pursuant to s 191(1)(d) of the Real Property Act 1886 (SA) that the caveat be removed and that on settlement of the Properties, the net proceeds of the sale of the Properties be paid into Court after deduction of (1) all amounts properly payable by the applicant at settlement and (2) the further sum of $137,181.46 (with minor adjustments according to the date of settlement) representing amounts paid by the applicant since March 2020 for the mortgage, water rates, other holding costs and development costs. The applicant has amended that amount to $147,829.19 to take into account further amounts paid by the applicant since the issuing of the originating summons.
These proceedings are related to earlier proceedings, Fang v Fei, No CIV-21-002158 which also involved a caveat placed over the Properties, in that case by Ms Fang. After the caveat had been warned, Ms Fang had sought an extension of time for the removal of the caveat. Ms Fang claimed that she had entered into a loan agreement with Veritas pursuant to which she had advanced the sum of $800,000 which was used in part at least, to fund costs relating to the acquisition, holding or development of the Properties.
I ultimately decided that Ms Fang did not have a caveatable interest and further ordered that the net settlement sum less $87,529.73 (which was the amount then owed to Mr Fei) be paid into court.
Background facts
Although there is a dispute as to some of the details concerning the entry into of the joint venture and the amounts paid by Veritas, I make the following findings for the purposes of this application and based on the evidence before me.
In about April 2018, the applicant was approached by Yida Xiong (known as Benny), who was then a director of Veritas. Benny ceased to be a director of Veritas when he became bankrupt on 21 May 2019.[1] Veritas was at that time interested in purchasing and developing the Properties but was unable to obtain a bank loan.[2] Veritas approached the applicant with a proposal that for a very modest share of the profits of the proposed development, the applicant would purchase the Properties upon which Veritas would undertake the development.[3]
[1] Affidavit of Junyi Fei sworn 1 April 2021 (Fei 1) at [10].
[2] Affidavit of Yida Xiong (Benny) sworn 17 February 2022 (Benny 1) at [4].
[3] Fei 1 at [11].
Prior to purchasing the Properties, the applicant and Veritas entered into the Joint Venture Agreement dated 28 May 2018.[4] The Joint Venture Agreement recites that that the joint venturers have agreed to enter into a joint venture for the acquisition, holding and development of the Properties. It further provides that:
[4]    Affidavit of Junyi Fie sworn 23 December 2021 (Fei 3) at [12] and exhibit JF 3 (p 21).
[4] The joint venturers propose:
(a) to acquire the Land [ie the Properties];
(b)   to develop and undertake the improvements on the Land; and
(c) to divide the expected profits from the sale of the Property amongst the venturers.
[5] (a)    Subject to clause 17 of this agreement, the First Party [Veritas] agrees:
(i) to develop the Land at the cost of the First Party by developing the improvements [the improvements were defined in the agreement to mean the construction of a residential building on the Properties in a manner determined by Veritas]
(ii) to periodically (in line with the scheduled instalments under the Second Party Loan [being a loan that the applicant will obtain in relation to the Land] pay direct or to the Second Party [the applicant] amounts equal to each instalment of principal and interest due under the Second Party Loan (but excluding any default or penalty interest as may be charged to the Second Party for any reason) and holding costs in respect of the Land.
[7] (a)   Unless otherwise agreed in writing between the parties, the parties must contribute the capital required to complete the project in the following manner:
First Party [Veritas] Settlement costs; and
All funds required to develop the Improvements (the amount being at the discretion of the First Party).
All other funds to hold the Land, make payments in relation to the Second Party Loan (in accordance with this agreement) and sell the Property.
Second Party [Fei] The Second Party Loan [the loan from the NAB)] as described in clause 5(b)(i).
(b) …
(c)   Despite anything in this agreement to the contrary, the parties covenant and agree:
(i)(Profits) all proceeds from the sale of the Property shall be directed by the First Party as follows and in the following order:
1. payment of all selling costs (in relation to the sale of the Property);
2.    payment of funds to discharge the Second Party Loan and related mortgage;
3.     payment of the amount of on per cent (1%) of the Net Profit Margin on Sale to the Second Party;
4.    payment of the balance of the sale proceeds to the First Party (or otherwise as the First Party directs); and
(ii) (Losses) the parties will share in the losses of the joint venture in the same proportions.
In summary, Veritas was to pay all acquisition, mortgage, holding, development and sale costs in exchange for 99% of the net profits.
The Joint Venture Agreement also provides for the transfer of the property by the applicant to Veritas on the request of Veritas following the dispute resolution procedures being carried out (clause 12), in the event of default continuing after 14 days’ notice to remedy the breach or upon request (clause 18). Clause 18 provides:
Without limiting clause 12 of this agreement, the Second Party [the applicant] covenants and agrees with the First Party that the Second Party shall without delay upon receiving a written notice from the First Party requesting a transfer of the Land, transfer, for no monetary or other consideration, the Land to the First Party or a third party at the direction of the First Party (but without limiting any obligation of the part of the First Party to pay out the Second Party Loan).
The applicant acquired the Properties on about 26 June 2018 (just after entering into the Joint Venture Agreement) and applied for and obtained a loan from the NAB.[5]
[5] Fei 1 at [12] and [13].
There is a dispute between the parties as to how much money Veritas applied towards the acquisition, development and holding of the Properties (including payment of the mortgage monthly instalments up to about the end of December 2018). Certainly, the evidence, for the purpose of this application, shows that Veritas paid a deposit of $40,000 on the purchase of each of the Properties.[6] Veritas also appeared to pay a further $161,223.47 and $192,419.95 on settlement.[7] Veritas claims to have paid a further $97,767.97 to the applicant in respect of mortgage repayments between August 2018 and March 2020[8] and in total $1,079,940.35 towards the purchase and development of the Properties in the period between June 2018 and December 2019 (including the purchase and mortgage costs).[9] These amounts are disputed by the applicant. The applicant accepts that Veritas paid about $400,000 for the acquisition, development and holding of the Properties. I do not need to determine for the purposes of this application the exact amount advanced by Veritas.
[6] Benny 1 at [7]-[9].
[7] Ibid at [16]; JF 4 to Fei 1 (p43-46).
[8] Benny 1 at [14].
[9] Ibid at [18].
In April 2019, Veritas provided a cheque in the sum of $4650.12 and three further cheques totalling $14,447.06 to the applicant for the payment of the mortgage to NAB, which cheques bounced.[10] The applicant paid those monies.[11] Whilst it appears that Veritas recommenced payments in about May 2019, it ceased all payments in about March 2020. It has made no payments since that date.[12]
[10] Fei 1 at [17]; Benny 1 at JF-6 (p167).
[11] Fei 1 at [17].
[12] Fei 1 at [18]; Benny 1 at [18].
Since March 2020, the applicant has paid the following amounts in payment of the mortgage, holding and development costs in relation to the Properties, which, under the Joint Venture Agreement, were payable by Veritas:[13]
[13] Affidavit of Junyi Fei sworn 23 December 2021 at [41] and [42] (Fei 2); Affidavit of Junyi Fei sworn 25 February 2022 (Fei 3) at [3] and [20]-[22].
(1)The sum of $62,957.23 paid to NAB for the mortgage and Allianz for the insurance of the Properties;
(2)The sum of $42,876.61 paid to SA Water for development costs and connections and water supply fees;
(3)The sum of $12,601.25 paid to Burton Demolition for demolition services.
(4)The sum of $550 to Crawford Legal in connection with the purchase of one of the subdivided properties;
(5)The sum of $466.60 to Revenue SA for the emergency services levy;
(6)The sum of $22,789.50 to Pinksterboer Property for the stage subdivision and associated fees;
(7)The sum of $1188 to SA Power Networks for relocation of a power pole;
(8)The sum of $4400 to Adelaide Trees and Gardens for tree removal.
I am therefore satisfied that the applicant has paid the sum of $147,829.19 in respect of mortgage, development and holding costs in relation to the Properties since about March 2020.
In a meeting held on 9 March 2020 (which Veritas has acknowledged as being correct as to what was discussed), Veritas acknowledged that it was currently unable to proceed with the Netherby Project.[14] The Minutes go on to record that Veritas owed significant sums of money to some of its financiers.
[14] Benny 1 at [36] and exhibit YX-18 (p139).
The proposed development contemplates the division of the Properties from two allotments into three allotments. The applicant has entered into three contracts for the sale of the Properties which are subject to the proposed subdivision plan being deposited with the Registrar-General. These contracts are:[15]
(1)A contract between the applicant and Scott William Taylor and Frances Janelle Taylor dated 27 August 2020 in which Mr and Mrs Taylor agreed to purchase one of the allotments for the sum of $640,000;
(2)A contract between the applicant and Alemil Pty Ltd dated 31 January 2021 in which Alemil Pty Ltd agreed to purchase an allotment for the sum of $628,000;
(3)A contract between the applicant and Anthony Puccini dated 31 January 2021 in which Mr Puccini agreed to purchase an allotment for the sum of $625,000.
[15] Affidavit of Junyi Fei sworn 16 April 2021 at [4] and annexure JF 5 (pp7-750.

The land subdivision application is still current and, if the caveat is removed, the application for the registration of the land division will be lodged with Land Services SA and an application for new titles lodged. The applicant anticipates that it will take about two weeks for new titles to issue and for settlement on the Properties to then occur.[16]
[16] Affidavit of Junyi Fei sworn 25 February 2022 at [19].
Other than the repayment of these sums, the applicant does not seek any further share of the proceeds of sale.[17] He does not seek any profits from the development.
[17] Affidavit of Junyi Fei sworn 16 April 2021 at [17].
In his affidavit sworn 27 February 2022,[18] Benny (on behalf of Veritas) stated that he was aware of the first contract of sale (to Mr and Mrs Taylor) and agreed to that contract and sale because he understood that the $640,000 was a good amount to pay down the NAB loan. Benny said that he did not agree to the two subsequent contracts.[19] He further claims that the contracts entered into by the applicant were at too low a price. He further stated that Veritas had entered into a development agreement with a third party dated 10 July 2020 whereby the third party agreed to purchase the Properties for $2.45m.[20]
[18] At paragraph [50.4].
[19] Ibid.
[20] Ibid.
I accept the submission of the applicant that the sale contracts, including the sale contract to Mr and Mrs Taylor, to which Veritas admits consenting to, are inconsistent with the continuance of the Joint Venture Agreement.
The applicant seeks the removal of the caveat so that the subdivision can proceed and the three sale contracts completed. The applicant agrees to pay the net balance of the amount received on settlement of the three contracts after the payment of the amounts owed to NAB and the $147,828,19 for the reimbursement of the costs that it has incurred since March 2020.
The caveatable interest claimed by Veritas is:
An estate or interest as chargee pursuant to an agreement in writing made between the caveator and the caveatee wherein the caveatee agreed to charge their estate and interest in favour of the caveator dated 28 May 2018.
Legal principles
(i) Approach to application for removal of a caveat
Under s 191(1) (d) of the Real Property Act:
the registered proprietor or any other person claiming estate or interest in the land may, by summons, call on any caveator, including the Registrar-General, to attend before the Court to show cause why the caveat should not be removed; and the Court may, after allowing the parties a reasonable opportunity to be heard, make such order as appears just in the circumstances; (if the caveator does not appear in response to the summons, the Court may, if satisfied that the summons was duly served, proceed to hear and determine the application in the caveator's absence).
In Stone v Leonardis & Anor,[21] White J discussed how a registered proprietor could make application to remove a caveat that had been placed over its property. The most common application was for the registered proprietor/caveatee to warn the caveat under s 191(1)(e)-(g) of the Real Property Act in which case the caveat will be removed unless the Court, on the caveator’s application, extends the time for the removal of the caveat. The second method of removal was for the registered proprietor/caveatee to apply itself to remove the caveat pursuant to s 191(1)(d). White J held that the underlying nature of the caveat had similarities with an interlocutory injunction.[22] Therefore, the caveator, whether seeking to extend the time for the removal of the caveat or resisting an application to remove the caveat, will have the onus of persuading the Court that the caveat should remain on the property.[23] Therefore, the court must determine whether there is a prima facie case in the sense described in ABC v O’Neill[24] (discussed below) and whether the balance of convenience favours an order extending the time for the removal of the caveat.[25]
[21] [2011] SASC 153; (2011) 110 SASR 503 at [20]-[26].
[22] Ibid at [22]-[23].
[23] Ibid at [26]. Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198 at 204; Nexus Mortgage Securities v Mawson KLM Holdings and Starmaker (No 51) Pty Ltd (1997) 193 LSJS 474 at 478-480;
[24] [2006] HCA 46; (2006) 227 CLR 57.
[25] Ibid; Paringawood Nominees Pty Ltd v Baulderstone [1999] SASC 380 at [4], [14]-[16]
The caveator must make out a prima facie case in the sense that if the evidence remains as it is there is a probability that at the end of the trial it will be entitled to relief.[26] The reference to a prima facie case does not mean that the applicant must show that it is more probable than not at trial it will succeed; it is sufficient that he shows a sufficient likelihood of success to justify in the circumstances the preservation of the status quo.[27]
[26] ABC v O’Neill (2006) 227 CLR 57 at [65] applying Beecham Group Ltd v Bristol Laboratories (1968) 118 CLR 618.
[27] Ibid at 82.
The caveator must satisfy two further requirements, namely the balance of convenience (whether the inconvenience of damage that the caveat would likely suffer if the caveat is removed, outweighs the inconvenience or damage that the caveatee would suffer if the caveat remains on the property) and that damages are not an adequate remedy.[28] The onus lies on the caveator to satisfy the Court of these matters.
[28] Acmnet Pty Ltd v Al Tel Pty Ltd [2007] SASC 96 at [65], [145]-[147] per Layton J.
The approach taken by White J in Stone v Leonardis to an application for the removal of a caveat pursuant to s 191(1)(d) was followed by Hinton J in Psevdos v First Mortgage Company Home Loans Pty Ltd.[29]
[29] [2019] SASC 130 at [9]-[10].
A caveat must accurately describe the proprietary interest over the subject matter alleged to be held by the caveator. In Union Finance Pty Ltd v Rateki Pty Ltd & Anor (No 2),[30] Judge Lunn held that for a caveat to be allowed to remain on the title, it must correctly identify a legally maintainable interest in the land by the caveators, citing Caravan & General Finance Pty Ltd v Clearview Developments Pty Ltd[31] and Roclin Investments Pty Ltd v Makris.[32] In Caravan, Zelling J held that the caveat was defective because the ground upon which the claim is made under the caveat was not a ground which was sustained by any of the documents before the Court.[33] In Roclin Investments, Hogarth J held that the caveat was, on its terms, too wide and therefore was bad.
(ii) Equitable Charge
[30] [2007] SASC 11 at [16].
[31] (1976) 15 SASR 404.
[32] (1974) 7 SASR 485.
[33] (1976) 15 SASR 404 at 406.
The nature of an equitable charge was discussed by Peter Gibson J in Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd[34] where he held:
The type of charge which it is said was created is an equitable charge. Such a charge is created by an appropriation of specific property to the discharge of some debt or other obligation without there being any change in ownership either at law or in equity and it confers on the chargee rights to apply to the court for an order for sale or the appointment of a receiver, but no right of foreclosure.
[34] [1985] 1 Ch 207 at 227. See also National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 449-450; Crampton v French [1996] ANZ Conv R 156; O’Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200.
An equitable charge arises out of an agreement between the parties. No specific words are required to create an equitable charge, but the court must be able to objectively ascertain that the intention of the parties was that the property should constitute a security for the debt or other obligation.[35]
[35] Cradock v Scottish Provident Institution (1893) 69 LT 380 at 382; Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 at [70]-[71],
It has been held that the granting of an authority to lodge a caveat by itself, is not sufficient to evidence an intention of the parties that the property be appropriated for security for the repayment of a debt. Bryson AJ held in Taleb v National Australia Bank:[36]
59.In Iaconis v Lazar, Young CJ in Eq said:
The current commercial enthusiasm for this sort of clause in a contract and for lodging a caveat was given a great boost by the decision of the Court of Appeal in Troncone v Aliperti . This decision has often been interpreted by persons seeking charges as meaning that every time there is an agreement that X can lodge a caveat over any property Y may own, that an equitable charge is created. It should be remembered, as McLelland CJ in Eq said in Coleman v Bone, that the true principle is that "Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money." [citations omitted]
60.With respect I do not agree with either of these observations. In my view the meaning conveyed by a contractual document, including what is conveyed by implication, must be understood by addressing the terms and the whole terms of the document in question, and there is no principle or true principle establishing what implication must be drawn in all cases from authority to lodge a caveat in connection with an obligation to pay money. In my opinion Mahoney JA did not state such a principle in Troncone v Aliperti and in my opinion there cannot be such a principle, because a principle of law of that kind would divert the court from addressing the terms of each document to discover what it means, by expression and by implication.
61.The circumstances that there was a debt and that there is to be a caveat, together with the nature of the caveat, certainly direct attention to whether it was intended that the debt should be protected by a charge or some other interest. It is quite likely that there was some such intention in the mind of one party or of both, but if that intention is not found expressed or by implication in their document there is no equitable interest. Authorisation to lodge a caveat does not create by necessary implication the conclusion that there must have been an intention to create an equitable interest, and that there must have been the further intention that that interest should be a charge over the property.
[36] (2011) 82 NSWLR 489 at [59]-[61].
Taleb has been discussed in a number of cases including Yaran Holdings Pty Ltd v Goldsmith 7 Pty Ltd,[37] Aged Care Services Pty Ltd v Kanning Services Pty Ltd[38] and Complex Scaffolding Solutions Pty Ltd v Doueihi.[39] The propositions that derived from these cases is that there is no principle that an implication must be drawn in all cases from the authority to lodge a caveat that the parties intended to create an equitable charge but each case should be addressed by reference to the terms of the contractual documents to ascertain the parties’ objective intention.
[37] [2014] WASC 171 at [61]-[63].
[38] [2013] NSWCA 393 at [82]-[83].
[39] [2014] NSWSC 230 at [30].
Robb J in Complex Scaffolding Solutions Pty Ltd v Doueihi[40] summarised the position as follows:
[W]here the only right given to the creditor is to lodge a caveat, it might be difficult to determine whether the parties intended the lender to have a charge over the relevant property. A mere right to lodge a caveat, without more, should not give the creditor a charge: see Taleb v National Australia Bank, Coleman v Bone and Iaconis v Lazar However, it may be, when all of the circumstances are considered, and the relevant term is construed in its context, the court should find by implication that the parties intended that the creditor would be entitled to a charge: see Murphy v Wright. Where the relevant term uses words such as 'charge' and 'mortgage' the conclusion that the term was intended to create a security in favour of the lender may be relatively easy to reach. [citations omitted].
(iii) Constructive trust
[40] Ibid.
The Courts have shown a willingness to impose a constructive trust requiring the legal owner of the land to hold land on trust for another in circumstances where the other person has made contributions to the acquisition, maintenance or renovation of property pursuant to a joint endeavour or relationship which has failed in circumstances where blame cannot be attached to either party.
In Muschinski v Dodds,[41] the High Court found that the parties held their respective legal interests in common upon trust for each other to repay each his or her respective contributions to the venture. Deane J (Mason J agreeing), held that it was appropriate to impose a constructive trust in the circumstances of that case to give effect to the general equitable principle which restores to a party contributions which he or she made to a joint endeavour which fails when the contributions have been made in circumstances in which it was intended that the other party should enjoy them.
[41] [1985] HCA 78; (1985) 160 CLR 585 at 614.
In Baumgartner v Baumgartner,[42] the High Court held that the assertion by one party after the relationship had ended that the property was his beneficially to the exclusion of any interest at all of the other, amounted to unconscionable conduct which attracted the intervention of equity and the imposition of a constructive trust at the suit of that other party.
[42] [1987] HCA 59; (1987) 164 CLR 137 at 147-8.
The underlying basis of the constructive trust is founded on the unconscionable conduct. As Deane J held in Muschinski:
Like most of the traditional doctrines of equity, it operates on legal entitlement to prevent a person from asserting or exercising a legal right in circumstances where the particular assertion or exercise of it would constitute unconscionable conduct … the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of the money or other property contributed by one party on that basis and for the purpose of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specifically provided that that other party should so enjoy it. The content of the principle is that in such a case equity would not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do.
I accept the submission of the applicant that a party who wishes to available himself or herself of an equitable remedy can only do so on terms that they fulfil their own legal and equitable obligations arising out of the subject matter of the dispute.[43] In short, the party who seeks equity must do equity. The applicant refers to the following passages, which I accept as applicable, and which deal with expenses defrayed by the trustee.
...Again, a beneficiary will get no assistance from equity against the trustee in seeking to recover trust property unless the beneficiary is prepared to defray the trustee’s legitimate expenses. Those who claim the benefit of a constructive trust of some sort must also be willing to do equity...One who asserts partial equitable ownership of a family home by way of a constructive trust must similarly be prepared to do equity, if, say, the registered owner has defrayed all the costs and expenses of the relevant land: equity will require the plaintiff to make good the relevant portion of the expenses.[44]
[43] Meagher, Gummow and Lehane Equity Doctrines and Remedies 4^th ed, 2002 at [3-070].
[44] Ibid.
In Baumgartner, [45] Mason CJ, Wilson and Deane JJ held:
There are, however, other adjustments which should be made in the interests of justice. Those adjustments are all in favour of the appellant. The appellant should be entitled to receive from the proceeds of any sale of the property repayment of the contributions effectively made by him before and after the period during which the parties were living together and pooling their resources. That is to say, the appellant should be entitled to be paid the net proceeds of the sale of his unit ($12,883.41) which were devoted to the purchase of the property less the amount of payments of instalments under the mortgage over the unit which were made from the pooled earnings during the period of cohabitation. The appellant should also be entitled to be repaid the instalments under the mortgage over the property which he has paid during the period since the termination of the relationship between respondent and himself subject to an off-setting adjustment to reflect any benefit enjoyed by the appellant through use and occupation of the property during that period.
(iv) Repudiation
[45] [1987] HCA 59; (1987) 164 CLR 137 at [39].
Repudiation will be established if the conduct of Veritas conveyed to the applicant an inability or unwillingness on its part to perform the contract or to only perform it in a substantially inconsistent way to its obligations.[46]
[46] Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 648 and 658.
Evidencing an intention not to be bound is sufficient: In Shevill v Builders Licensing Board,[47] Gibbs CJ (with whom Brennan J agreed) said:
a contract may be repudiated if one party renounces his liabilities under it-if he evinces an intention no longer to be bound by the contract or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way.
[47] [1982] HCA 47; (1982) 149 CLR 620 at 625-6.
Repudiation is not ascertained by an inquiry in Veritas’s subjective state of mind: it is found in the conduct, whether verbal or other, of the party in default, which conveys to the other party the inability or unwillingness to perform the contract or to perform it in a manner substantially inconsistent with the obligations under the contract.[48]
[48] Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 647-8.
Repudiation may be evidenced by a single act or by an accumulation of conduct in circumstances where no individual act on its own constitutes a repudiation.[49]
[49] Paul Fishlock v The Campaign Palace Pty Ltd [2013] NSWSC 531 at [126].
There will be repudiation of the conduct if the conduct of Veritas was such as to convey to a reasonable person in the position of the applicant repudiation or disavowal of the Contract as a whole or a fundamental obligation.[50] It therefore depends on objective acts and omissions and not on uncommunicated intention.
[50] Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 648 and 658.
Repudiation is not to be inferred lightly and is a serious matter. If there is not an express refusal to perform the contract (which is the clearest case of a repudiation) a repudiation may be established if a refusal can be implied from the promisor’s words or conduct. Lord Colderidge CJ formulated the test in Freeth v Burr[51] as being “whether the acts or conduct...amount to an intimation of an intention to abandon or altogether refuse performance of the contract”.
[51] (1874) 9 LRCP 208.
Actual failure to perform a contract when performance is due may in some circumstances demonstrate an unwillingness or inability to perform the contract at all (eg a deliberate breach of contract).[52]
[52] Associated Newspapers Ltd v Bancks [1951] HCA 24; (1951) 83 CLR 322.
In the cases of repudiation based on an inability to perform, again the clearest case is where the promisor expressly declares an inability to perform its unperformed contractual obligations.[53] If there has been no declaration of an inability to perform, the promisee must prove that the promisor was in fact wholly and finally disabled from performing the contract.[54]
[53] See Hoad v Swan (1920) 28 CLR 258 at 264.
[54] British & Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48 at 72; see also Rawson v Hobbs (1961) 107 CLR 466; Galafassi v Kelly (2014) NSWLR 119; [2014] NSWCA 190.

In order for the contract to be terminated, the promisee must accept the repudiation and terminate the contract.[55] Standing alone, a repudiation does not have this effect.[56] If a party to a contact repudiates the contract or a fundamental obligation under it, the innocent party has the election to accept the repudiation and bring the contract to end.[57]
[55] Heyman v Darwins Ltd [1942] AC 356 at 382; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235.
[56] Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435.
[57] Timothy Neil McQueen v Leduva Pty Ltd [2008] NSWSC 284 at [70].
Once a repudiation is accepted, both parties are discharged from the obligation to perform in the future their respective contractual duties, but accrued rights and liabilities are not affected.[58] Where the repudiation is not accepted, the contract remains on foot and the requirement of readiness and willingness to perform continues through to the time of performance. In some cases, readiness or willingness to perform is excused when it is clearly pointless or inappropriate.[59]
[58] McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477.
[59] see Foran v Wight (1989) 168 CLR 385 at 408; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235.
Determination of the application
Veritas has claimed in its caveat an equitable charge pursuant to the Joint Venture Agreement. The first stage of the enquiry is therefore whether Veritas has established that it has a prima facie case (in the sense described in ABC v O’Neill) that it has a proprietary interest in the Property by way of an equitable charge. Put in another way, does the Joint Venture Agreement evidence an objective intention that the parties had agreed to appropriate the Properties as security for a debt or other obligation owed by the applicant to Veritas.
I am not able to discern any such intention. Whilst it is clear that Veritas had advanced substantial sums of money in relation to the acquisition, holding and at least some development of the Properties, it did so on the basis that it would be entitled to 99% of the net proceeds of sale. It was never envisaged and there was no obligation that the applicant would repay to Veritas the costs that Veritas had expended.
Therefore, whilst the Joint Venture Agreement provided that Veritas was entitled to lodge and register a caveat on the title to the Properties, the agreement as a whole, does not, in my opinion, demonstrate an intention to create an equitable charge. Following cases such as Taleb, Yaran Holdings, Aged Care Services and Complex Scaffolding Solutions Pty Ltd, the mere authority to register and lodge a caveat by itself is not sufficient to demonstrate an intention to create an equitable charge. In the present case, the Joint Venture Agreement does not permit such an intention to the inferred.
It follows that Veritas has not established, on a prima facie basis, the interest that it has claimed in the caveat that has been lodged. The caveat, in line with authorities such as Union Finance Pty Ltd v Rateki Pty Ltd & Anor (No2), Caravan & General Finance Pty Ltd v Clearview Developments Pty Ltd,[60] and Roclin Investments Pty Ltd v Makris, is defective and ought to be removed.
[60] (1976) 15 SASR 404.
Veritas, in the course of argument, based its submission that the caveat should not be removed on the basis of a constructive trust.[61] The applicant did not object to that submission or submit that a constructive trust went beyond the terms of the wording of the caveat. Accordingly, given that Veritas could have applied either to amend the caveat or lodge a second caveat, it is appropriate that I consider whether Veritas has established that it has a prima facie case that it has a constructive trust.
[61] Respondent’s outline of submissions at [9].
It is clear in my opinion that Veritas has a prima facie claim (subject to the matters discussed below) as a constructive trustee. Veritas has expended money in relation to the acquisition, holding and development of the Properties. It is clear, in my view, that the joint venture has failed. The Properties are in the name of the applicant. Accordingly, in accordance with the principles set out in cases such as Baumgartner v Baumgartner and Muschinski v Dodds, Veritas has a claim as a constructive trustee.
Veritas has disputed that it has repudiated the Joint Venture Agreement and contends that agreement is still extant. That would have the consequence that the joint venture had not failed and therefore one of the requirements for the imposition of a constructive trust would not have been established. Veritas’ claims would be based on the Joint Venture Agreement.
However, I am satisfied, for the purposes of this application, that the Joint Venture Agreement has been terminated. The evidence before me shows that since March 2020, Veritas has not paid any of the monthly interest payments due to be made to NAB. Therefore, about 25 payments have not been made. Veritas has not indicated any willingness or ability to make the payments. Further, Veritas agreed to the sale of one of the contracts to the third parties. That has the consequence that the development contemplated under the Joint Venture Agreement cannot occur even if the funds were provided. Still further, Veritas has not taken any step in pursuing the Joint Venture since March 2020. It has not undertaken any work in relation to the development of the Properties.
In these circumstances, I consider by (1) its failure to make the monthly mortgage payments since March 2020 and (2) the passage of time since March 2020 when it has undertaken no step in furtherance of the Joint Venture Agreement, Veritas has repudiated the Joint Venture Agreement by indicating a continual unwillingness to comply with the terms of the agreement. The applicant has accepted that repudiation by, inter alia, entering into the three sale contracts to the third parties, the passage of time and by itself undertaking work in relation to the subdivision of the property.
I accept also the submission of the applicant, as an alternative to repudiation that the Court can infer an agreement to terminate by the abandonment of the contract by one party and the concurrence in that course by the other. That inference can be drawn from a long delay.[62] In Fitzgerald v Masters,[63] Dixon and Fullagar JJ held:
What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that (in the words of Rowlatt J) ‘the matter is off altogether’.
[62] JD Heydon “Heydon on Contract”, 2019, Lawbook Co at [22.150]
[63] (1956) 95 CLR 420 at 431.
If the joint venture agreement was not repudiated, I am satisfied, for the purposes of this application that it has been terminated by agreement.
The question then arises as to whether Veritas has established, on a prima facie basis, that it is entitled to the remedy of a constructive trust, notwithstanding that it has failed to acknowledge or accept the imposition of such a trust subject to the claims of the applicant for paying mortgage, holding and development costs. In other words, has Veritas failed to do equity, such that the court will not grant it equitable relief in the form of a constructive trust.
For the purposes of this application, I consider that the evidence establishes that the applicant has made mortgage payments and other costs relating to the holding and subdivision of the Properties. Therefore, in accordance with the principles set out in Meagher, Gummow and Lehane and in Baumgartner, Veritas must accept that claim before it is entitled to the equitable remedy of a constructive trust. As Veritas has denied these claims, I consider that it has not established a prima facie case that it is entitled to the relief sought and therefore has not established on a prima facie basis a proprietary interest in the Properties that would justify the continuance of the caveat.
Veritas has contended that the applicant has also breached the terms of the Joint Venture Agreement or its duties as trustee of the Properties. Although the legal consequences of that contention were not expressly articulated, I take Veritas to be advancing an argument that because of these claims, it is not required to recognise the equitable claims of the applicant and the Court should proceed to recognise its [Veritas’] claim for a constructive trust without any reduction.
I do not consider that on the evidence that Veritas has established these prima facie claims against the applicant. It has not identified any breach of the Joint Venture Agreement by the applicant, other than selling the Properties at an undervalue. It has not adduced any evidence of any other breach. It has only made bald assertions. In any event, on the evidence before me, the Joint Venture Agreement was terminated by reason of the repudiation of Veritas.
The only potential breach of the Joint Venture Agreement upon which Veritas adduced any evidence at all was that the applicant did not obtain the best sale price for the Properties. That could also sound in a claim against the applicant for breach of its duties as trustee of the Properties. Veritas would be entitled to equitable damages for such a breach.
The only evidence adduced by Benny on this topic was the following:
From about July 2020 I had told the Applicant and Shawn [real estate agent] on various occasions that Veritas had signed a development agreement [dated 10 July 2020] with a third party who had agreed to buy the Land for approximately $2.45 million dollars.[64]
[64] Affidavit of Benny sworn 17 February 2022at [50.4].
A copy of that agreement was annexed to the affidavit. The agreement records that the prospective purchaser would pay a deposit of $100,000 in 350 Business days from the date of the agreement and the balance of the purchase price 500 Business days after the date of the agreement. There is no further evidence about this agreement or the purchaser. At its highest, Veritas relies on an inference that the sale price was inadequate because of the existence of this contract. There is no evidence that the sale prices in the three contracts were inadequate such that the applicant breached its duties as trustee. Veritas in its written submissions acknowledged that there was no current valuation evidence relating to the Properties. The three sale contracts were all to third party purchasers. The fact that one party was prepared to enter into a contract for a higher price, in circumstances unknown, does not provide sufficient evidence of a breach of duty by the applicant.
Even if I was satisfied that Veritas had a prima facie case that the applicant had breached his duties as trustee, I would not have found that Veritas could take the advantage of a constructive trust without first defraying the costs of the applicant in paying the mortgage and other holding and development costs. Those costs have preserved and enhanced the subject matter of the trust. I do not consider them to be subject to any equitable set off. The claims for breach of trust are personal claims and do not relate to the subject matter of the claim of these proceedings, namely the proprietary claim for a constructive trust over the Properties.
My conclusion would be the same if I had found that the Joint Venture Agreement was still on foot. Pursuant to clause 18 of the Joint Venture Agreement, Veritas had the option to require the applicant to transfer the Properties to it. Such an option creates an equitable interest in the Properties because the option holder has the power to obtain title to the Properties.[65] The enforcement of such an equitable interest, as with the case of the constructive trust, requires the holder to defray the trustee’s legitimate expenses.
[65] S Degeling, J Edelman “Equity in Commercial Law”, 2005 at p 46.
Balance of convenience
Veritas, in its written submissions, contended that the balance of convenience favoured it because the planning application lodged by it was withdrawn on 1 March 2022 with the alleged consequence that the plan of subdivision would not be able to be lodged and the three sale contracts would be terminated.
Further evidence adduced by the applicant showed that this contention was not correct[66] and that the withdrawal of the planning application by Veritas would have no effect on the land subdivision application. Accordingly, the withdrawal of the planning application did not render less likely settlement on the three sales contracts. Veritas, on receiving that further evidence, properly withdrew that submission.
[66] Affidavit of Thomas Eoin Johnston sworn 3 March 2022.
In my view, the balance of convenience clearly favours the removal of the caveat. That is, the prejudice suffered by the applicant if the caveat is maintained outweighs the prejudices suffered by Veritas if the caveat is removed.
If the caveat is maintained, the land division will not be able to proceed and the three sale contracts will be terminated by the intending purchasers. The intending purchasers will lose the benefit of the contracts and may have actions against the applicant. Further payments of the mortgage and other holding costs will become due and are unlikely to be made. In that event, it is likely that the NAB, as mortgagee, would seek to obtain possession of the Properties and subsequently sell them.
On the other hand, if the caveat is removed, the applicant will settle on the three sale contracts and receive the proceeds of sale. The mortgage to NAB will be discharged. The applicant will deduct the sum of $147,829.19 (which represents the expenses it has incurred since the default of Veritas in March 2020) and will then pay the net balance into court. The applicant makes no claim on the balance of the settlement monies. The Joint Venture Agreement always contemplated the sale of the Properties. One possible loss that could be suffered by Veritas in that event is the loss of a potentially higher sale price. That loss is a consequence of Veritas failing to make mortgage repayments. At best, Veritas would have a claim against the applicant for breach of its duty as trustee for selling the Properties at an under value. As I have found previously, there is no evidence supporting that claim. That claim would be an equitable claim for equitable damages and Veritas would not be entitled to any proprietary or security interest in respect of that claim. The second potential loss suffered by Veritas is that the sum of $147,829.19 has been deducted from the sale proceeds by the applicant. However, there is no question that Veritas owes that money.
To the extent it is relevant, I do not consider that Veritas has shown that damages are not an adequate remedy. There is no evidence as to the quantum of any claim that it has against the applicant nor that it would be unable to recover damages in that amount.
Conclusion
For the reasons that I have expressed, I order that the Caveat be removed from the Properties. I further order that upon sale of the Properties the net proceeds of sale be paid into Court after deduction of settlement costs, the amount required to discharge the mortgage and the sum of $147,829.19 to be paid to the applicant in reimbursement of the costs that it has spent in paying the mortgage over the Properties and in holding and development costs.