Karan v Nicholas
[2019] VSC 35
•7 February 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2018 01948
| FOTIOS (FRANK) KARAN (in his capacity as administrator of the estate of Soultana Karanicopoulos, deceased) | Plaintiff |
| v | |
| THEO NICHOLAS | First Defendant |
| | |
---
JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1 February 2019 |
DATE OF JUDGMENT: | 7 February 2019 |
CASE MAY BE CITED AS: | Karan v Nicholas |
MEDIUM NEUTRAL CITATION: | [2019] VSC 35 |
---
REAL PROPERTY – Caveats – Application for removal of a caveat under s 90(3) of the Transfer of Land Act 1958 (Vic) (‘TLA’) – Caveat lodged by the first defendant pursuant to claim of an implied or constructive trust between the caveator as beneficiary and the registered proprietors as trustee over the subject property – Yamine v Mazloum [2017] VSC 601, referred to – Whether equitable interest exists in relation to contributions made to the property in reliance on a future interest in the property – Whether constructive trust comes into existence at the time that the conduct giving rise to the trust occurs – McNab and Anor v Graham and Anor [2017] 53 VR 311, applied – Balance of convenience favours the removal of caveat as both parties agree that the property should be sold at auction – Order for removal of caveat made subject to certain conditions.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Seelig | Destra Law |
| For the Defendant | Mr B Harding | Kennedy Guy |
HER HONOUR:
The plaintiff, Mr Fotios (Frank) Karan is the administrator of the estate of his late mother (‘estate’). The first defendant, Mr Theo Nicholas, is his brother. They are beneficiaries of the estate in equal shares. The main asset of the estate is a property at 114 Edward Street, Brunswick (‘property’). Theo currently lives at the property, and he is also the sole registered proprietor of the neighbouring property at 112 Edward Street, where his late parents lived for many years.
The property has been the subject of a previous proceeding in this Court (‘earlier proceeding’). On 18 September 2018, Ierodiaconou AsJ dismissed an application by Theo for further provision in the form of a right to purchase the property based upon a valuation, rather than at public auction.[1] Frank has been taking active steps to sell the property, which is expected to realise in the vicinity of $2 million at auction. However, before giving clear title prior to sale, Frank is required to procure the removal of a caveat lodged by Theo on 7 August 2012. The caveat claims ‘an equitable estate in fee simple’. The grounds of claim is specified as follows:
By virtue of an implied and/or constructive trust between the caveator as beneficiary and the registered proprietors as trustee.
[1]Re Karanicopoulos; Nicholas v Karan [2018] VSC 537.
Frank issued this proceeding on 25 October 2018, seeking the removal of the caveat pursuant to s 90(3) of the Transfer of Land Act 1958 (Vic). When the application first returned before me on 3 December 2018, Theo relied upon an affidavit sworn by him on 29 November 2018 in opposition to the application. He deposed, in summary, as follows:
(a) he has lived in the property since 1988;
(b) in 1985, his parents gifted 112 Edward Street, where they lived, to him and Frank in equal shares;
(c) from the late 1980s, Frank used the equity in both properties to raise funds for various business ventures, on the basis that he was responsible for making the necessary loan repayments;
(d) in 2000, Frank transferred his share of 112 Edward Street to Theo to protect it from his creditors;
(e) in 2005, Frank ceased making any repayments with respect to loans totalling $346,000;
(f) in 2010, Frank ceased making repayments with respect to a loan of $55,000;
(g) Theo has made repayments of approximately $131,000 in respect of loans secured by the property;
(h) in December 2008, his father made a will leaving the property to Theo. However, his father unexpectedly predeceased his mother, who died intestate after many years in a nursing home;
(i) during the years that he lived at the property and his parents lived at 112 Edward Street, neither paid rent to each other. He was responsible for all rates and other outgoings for the property;
(j) over the years, he and his wife undertook renovation works to the property, including substantial renovations and extensions in 2004; and
(k) he deposed as follows:
I have indicated my willingness to lift the Caveat registered by me over 114 Edward Street, Brunswick upon settlement of the sale. This remains my position provided that the monies from the sale are held in trust until my claim as set out herein is finalised.
On 3 December 2018, I granted an adjournment to enable Theo to have further time to file evidence to elaborate upon and quantify his claim. On 17 December 2018, he did so. He provided detailed particulars of contributions he said he made to the property from 2000. These include:
(a) repairs and improvements at a cost of $50,200.94;
(b) mortgage repayments totalling $147,147.63;
(c) insurance costs of $10,326.35; and
(d) council rates totalling $15,150.19.
Accordingly, Theo claims that he has made contributions of at least $222,825.11, excluding any contributions made prior to 2000.
No affidavit was filed in reply to Theo’s evidence.
Theo claims that he has a caveatable interest in the property by reason of a Baumgartner[2] constructive trust based upon the contributions made by him to the property, or a ‘common intention’ constructive trust based upon the actual intentions of him and his parents that he would receive the property after their deaths by reason of the contributions he has made to the property. Theo seeks an order that the property be charged with payment to him of the sum of $225,825.11.
[2]Baumgartner v Baumgartner (1987) 164 CLR 137.
Counsel for Theo relied upon a number of authorities[3] to support his contention that Theo is the beneficiary of an ‘unconscionable retention of benefit constructive trust’ (‘Baumgartner trust’) over the property based on the mortgage repayments, improvements, council rates and home insurance payments he made with respect to the property. Counsel submitted that the evidence relied upon by Theo shows that:
[3]See Baumgartner v Baumgartner (1987) 164 CLR 137; Mushinski v Dodds (1985) 160 CLR 583; West v Mead [2003] 13 BPR 24431; Metcliff v Zhang [2018] NSWSC 1998; Green v Green (1989) 17 NSWLR 343; Henderson v Miles (No 2) (2005) 12 BPR 23, 579.
(a) Theo and his parents were involved in a joint endeavour whereby Theo made certain contributions to the property, which enabled Theo and his family to live rent free at the property, and his parents to live rent free at 112 Edward Street;
(b) Theo and his parents pooled their resources to facilitate the joint endeavour;
(c) the joint endeavour came to an end without any blame attributable to any party upon the death of Theo and Frank’s parents; and
(d) it would be unconscionable for the estate to retain the benefit of Theo’s contributions.
Counsel for Theo submitted that, alternatively, Theo is the beneficiary of a common intention constructive trust over the property. The Court can readily infer that there was a common intention of Theo and his parents that he would receive the property upon their death, as evidenced by the terms of his father’s will. Further, Theo acted to his detriment in making the contributions to the property, and it would be unconscionable for the estate not to recognise his interest in the property.
Finally, counsel for Theo submitted that any claim by Theo as a beneficiary of a constructive trust would not be defeated by the Limitation of Actions Act 1958 (Vic), or the principles of issue estoppel or Anshun[4] estoppel by reason of the bringing of the earlier proceeding.
[4]Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45.
Counsel for Frank denied that there was any Baumgartner or common intention constructive trust, and submitted further that Theo has no caveatable interest in the property in the absence of any order from the Court to the effect that he is the beneficiary of a constructive trust with respect to the property.[5] He submitted that Theo had no caveatable interest at the time that he lodged the caveat, as a caveat can only support an actual interest in land, not a potential interest in land. As such, there is no serious question to be tried, and the caveat ought to be removed forthwith. The Court can infer that the maintenance of the caveat is being used as a ‘bargaining chip’ to assist Theo in his dealings with Frank about the sale of the property.
[5]Counsel for Frank relied upon the following authorities: Eudunda Farmers Co‑Op Society Ltd v Mattiske [1920] SALR 309; Re Rutherford [1977] 1 NZLR 504; Ex parte Goodlet & Smith Investments Pty Ltd [1983] 2 Qd R 792; Attorney-General v Methodist Church of New Zealand [1996] 1 NZLR 230; McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612.
In the alternative, counsel for Frank submitted that Theo’s evidence regarding the contributions he made was inconsistent with his evidence in the earlier proceeding that he made contributions of $70,000. Further, a number of invoices were issued to a company controlled by Theo, and a number may also relate to 112 Edward Street. Further, a number of invoices are for household items, not repairs or improvements, and a number of invoices, receipts and payments post date the lodgement of the caveat in 2012. Finally, the contributions should be viewed in the context of them having been made over a period of thirty years, during which time Theo paid no rent for his occupation of the property.
Counsel for Frank submitted that, should I find that Theo has a caveatable interest in the property (contrary to his primary submissions), the caveat should nevertheless be removed, as the balance of convenience favours Theo vacating the property, and the property being sold. If Theo were to bring a proceeding seeking to make good his claim, Frank, in his capacity as the administrator of the estate, would need to withhold from distribution the sum claimed, and as such, Theo’s interests would be protected. Alternatively, Theo could apply for an injunction to restrain Frank from distributing the funds prior to the determination of his claim.
Counsel for Theo rejected the contention advanced on behalf of Frank that a claim to be a beneficiary of a constructive trust is not an interest in land capable of supporting a caveatable interest as being no longer good law. Counsel referred to the decisions of this Court in Goldshaw v Goldshaw[6] and Cressy v Johnson (No 3)[7] in support of his submission that such a claim may be protected by a caveat. Further, the question of whether, at the time the caveat was lodged, Theo had an equitable interest in the property is put beyond doubt by the decision of the Court of Appeal in McNab and Anor v Graham and Anor (‘McNab’),[8] where the Court held that a constructive trust arises at the time the conduct giving rise to the trust occurs.
[6][2002] VSC 491 [26].
[7][2009] VSC 52 [68].
[8](2017) 53 VR 311.
The principles governing the applications for removals of caveats are well known and well settled. These principles were summarised by John Dixon J in Yamine v Mazloum,[9] and, for convenience, I adopt the following statements made by his Honour:
[9][2017] VSC 601.
1. The court’s power under s 90(3) of the Act is discretionary.
2.Section 90(3) is in the nature of a summary procedure and analogous to the determination of interlocutory injunctions.
3.The caveator bears the onus of establishing that there is a serious question to be tried that it does have the estate or interest in land as claimed. What the statute requires is that the caveator show that there is at least some probability on the evidence before the court that they will be found to have the equitable rights or interest in the land asserted by them in the caveat. The court directs its analysis towards the relationship between the caveat that has been lodged and the interest claimed by the caveator.
4.If the caveator establishes a serious question to be tried in relation to the estate or interest claimed, the caveator must further establish that the balance of convenience favours the maintenance of the caveat until trial.
5.As a general rule, when considering the balance of convenience, the court should take whichever course appears to carry the lower risk of injustice if the court should turn out to have been wrong in the sense of declining to order summary removal of a caveat where the caveator fails to establish its right at trial or in failing to order summary removal of a caveat where the registered proprietors succeed at trial.
6.There is a relationship between the strength of the case in establishing a serious question to be tried and the extent to which the caveator must establish the balance of convenience favours the caveator. The stronger the case in establishing a serious question, the more readily the balance of convenience might be satisfied. It is sufficient that the caveator show a sufficient likelihood of success that in the circumstances justifies the practical effect which the caveat will have on the ability of the registered proprietor to deal with the property in question in accordance with its normal proprietary rights.[10]
[10]Ibid [15].
In my view, Theo has established that there is a serious question to be tried that he is the beneficiary of a constructive trust with respect to the property. While I would not be prepared to grant the final relief he seeks in this proceeding, as a number of the factual matters upon which he relies are by their very nature contestable, I accept that, for present purposes, he has a prima facie case for relief. The authorities relied upon by Theo with respect to the requirements for establishing the existence of a Baumgartner trust make it clear that such a trust could arise in the context of a range of family relationships, not just where the parties are domestic partners. Further, I accept that, notwithstanding there has been no court order confirming any entitlement of Theo to a constructive trust, the authorities relied upon by Theo provide support for the proposition that a claim of this nature is capable of supporting a caveat. In particular, the decision of the Court of Appeal in McNab confirms that a constructive trust comes into existence at the time that the conduct giving rise to the trust occurs. While it is not entirely clear from the evidence the precise date from which it could be said that a trust may have come into existence, it would certainly have been before 2012. The decision in McNab is also support for Theo’s contention that any claim by him is not barred by the Limitation of Actions Act 1958 (Vic). Finally, in the absence of any responsive evidence from Frank (noting that he had ample opportunity to respond to Theo’s evidence prior to the hearing), Theo’s claim is sufficiently strong to justify the burden imposed by the maintenance of a caveat, subject to consideration of the balance of convenience.
For completeness, I do not accept the submissions advanced on behalf of Frank that the decision of the Court of Appeal in Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd[11] precludes Theo’s claim to be the beneficiary of a conclusive trust over the property. That decision is authority for the proposition that the right of a mortgagee to bring an action to set aside a contract entered into by a mortgagor improperly exercising the power of sale is a mere equity, and not an equitable interest capable of supporting a caveat. Such a right is not analogous to the right of a party in the position of Theo to bring an action to validate or enforce a claim for a constructive trust: the decision in McNab makes it clear that, if made good, the equitable interest in land arises prior to the Court making orders to that effect.
[11][1994] 1 VR 672.
The balance of convenience does not require detailed consideration on this occasion, as both parties agree that the property should be sold at auction, which would necessitate the removal of the caveat. If there had been no such agreement, the position would not be so clear cut, given Theo’s lengthy occupation of the property. However, the real issue is whether a sum of money should be set aside from the proceeds of sale to meet any claim by Theo as a condition of removing the caveat. Alternatively, as suggested on behalf of Frank, Theo could issue a proceeding and seek interlocutory injunctive relief to restrain the distribution of the proceeds of sale of the property.
In my view, the former course is preferable, and more consistent with the overarching obligations imposed upon the parties and the Court by the Civil Procedure Act 2010 (Vic). As observed by counsel for Theo, the test to be applied in any application for an interlocutory injunction is the same test applicable to whether a party is entitled to maintain a caveat. By reason of the matters referred to above, Theo has met this threshold test, and should not be put to the cost and expense of having to make a further application. I will, however, also impose a condition that Theo bring a proceeding to pursue his claim within a court of competent jurisdiction within thirty days from the date upon which the solicitors for the estate receive the proceeds of sale of the property in their trust account.
Accordingly, I shall order that the caveat be removed, subject to the conditions outlined above. I shall hear further from counsel on the form of orders and the question of costs.
11
0