M Goldberg and Co Pty Ltd v Burfam Investments Pty

[2010] VCC 276

IN THE COUNTY COURT OF VICTORIA Unrevised

Not Restricted

AT MELBOURNE
CIVIL DIVISION

COMMERCIAL LIST – GENERAL DIVISION

Case No. CI-10-00701

M GOLDBERG & CO PTY LTD (ACN 004 482 473)	Plaintiffs
AND OTHERS
v
BURFAM INVESTMENTS PTY LTD	First Defendant
(ACN 008 637 709)
and
REGISTRAR OF TITLES	Second Defendant

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JUDGE:	HIS HONOUR JUDGE SHELTON
WHERE HELD:	Melbourne
DATE OF HEARING:	11, 16 and 17 March 2010
DATE OF JUDGMENT:	15 April 2010
CASE MAY BE CITED AS:	M Goldberg & Co Pty Ltd & Ors v Burfam Investments Pty Ltd and Registrar of Titles
MEDIUM NEUTRAL CITATION:	[2010] VCC 0276

REASONS FOR JUDGMENT
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Catchwords: Removal of Caveat – indefeasibility of title – Sections 40, 41, 42, 43 and 90 of Transfer of Land Act 1958 – Hewitt v Gardner [2009] NSWSC 705 – Goldstraw v Goldstraw [2002] VSC 491 – Schmidt v 28 Myola Street Pty Ltd (2006) 14 VR 447 – Dennis Hanger Pty Ltd v Brown [2007] VSC 495 – Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407 – Law Mortgagees Queensland Pty Ltd v Thirteenth Corp Pty Ltd [1999] VSC 360 – Friedman v Barrett; ex parte Friedman [1962] Qd R 498 – Perpetual Trustees Victoria Ltd v Gheorghui [2007] VSC 412 – Moran v Cuthberts Nominees Pty Ltd (1997) V ConvR 54-566.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr J Arthur	MacKinnon Jacobs Horton & Irving
For the First Defendant	Mr R D Shepherd	McNab Lawyers
For the Second Defendant	No appearance
HIS HONOUR:

1 This is an application for removal of a caveat pursuant to Section 90(3) of the Transfer of Land Act 1958 (“the Act”). In fact, the issue between the parties is not whether the caveat should be removed but whether it should be removed conditionally or unconditionally.

Background

2          The plaintiffs are mortgagees in possession of the property at 9 Belvedere Avenue, Wheelers Hill, being the land described in Certificate of Title Volume 8789 Folio 307 (“the property”). The mortgage pursuant to which possession was claimed is dated 17 December 2004 and registered in Dealing Number AD327240J in the Office of Land Titles on 22 December 2004 (“the mortgage”). Caveat AG234609B (‘the caveat”) was lodged against the title by the first defendant on 8 December 2008. The caveat claims “an equitable estate or interest in fee simple”. The grounds of claim are “pursuant to a constructive trust existing between the registered proprietor and the caveator” and the extent of the prohibition is stated to be “absolutely”.

A Preliminary Matter

3          The fourth plaintiff is stated to be “Estate of the late Miriam Grinblat, deceased”). Miriam Grinblat, who is a mortgagee under the mortgage, died on 8 September 2009. A grant of probate of her estate has not yet been obtained. David Grinblat has consented to represent the estate of Miriam Grinblat for the purpose of this proceeding. In such a circumstance, the Court has power pursuant to Rule 16.03(1)(b) to appoint such a person to represent the estate for the purpose of the proceeding and Mr Arthur, who appeared for the plaintiffs, sought that I do so. Any concerns as to the proceeding being a nullity or issued irregularly because of the death of Miriam Grinblat are overcome by the fact that the proceeding has been issued regularly in respect of the other three plaintiffs and the provisions of Rule 16.03: see generally Hewitt v Gardner [2009] NSWSC 705. I am prepared to make the order sought.

The Facts

4          The relevant facts are generally not in issue.

5 As deposed to by Richard John Kent (“Kent”), a principal of MacKinnon Jacobs Horton & Irving, the plaintiffs’ solicitors, the first three plaintiffs in this proceeding, together with Miriam Grinblat (“the mortgagees”), were members of a managed investment scheme registered under Chapter 5C of the Corporations Act 2001 (Cth) called the IMMS Mortgage Fund. The purpose of the fund was to place investment monies from scheme members into third party mortgage loans arranged through the fund by its Responsible Entity. The Responsible Entity received loan applications from potential borrowers. If approved by the Responsible Entity, the loan would be secured by a registered mortgage. In some instances, the member or members who had invested in a loan would be registered as the mortgagees on the mortgage in lieu of the Responsible Entity. That occurred in the present case.

6          Prior to 19 December 2008, IMMS Financial Services Limited (“IMMS”) was the Responsible Entity for the fund. On that date, Australian Finance & Leasing Limited (“AFL”) replaced IMMS as the Responsible Entity of the mortgage fund.

7          In December 2004, IMMS entered into a loan contract with Andrew Bortelli (“Bortelli”) whereby IMMS agreed to lend Bortelli the sum of $1.235 million. The loan was to be for a period of twelve months. The loan was to be secured by a registered first mortgage over the property of which Bortelli was then registered proprietor. Bortelli gave the mortgage over the property to the four mortgagees, scheme members who advanced the loan monies. The mortgage stated that the four mortgagees held their interests in the mortgage as tenants in common in the proportions stated therein.

8          In October 2005, the original loan contract was extended for a further term of twelve months. Again, in February 2007 and January 2008, the loan was renewed and fresh loan contracts entered into. The renewed loans on each of the three occasions were stated to be secured by the mortgage. The final renewal contract dated 8 January 2008 required re-payment of principal and interest on 20 March 2008.

9 Bortelli defaulted in his obligations under the mortgage. On 3 June 2009, AFL’s solicitors, now the plaintiffs’ solicitors, served upon Bortelli a Notice to Pay under s.76(1) of the Act and a Notice to Quit Possession. Kent deposes that in or about July 2009, Bortelli abandoned the property and AFL, as agent for and on behalf of the plaintiffs, entered into possession of the property and that the plaintiffs thereby became mortgagees in possession of the property.

10        Kent further deposes that on 24 October 2009, AFL, as agent for and on behalf of the plaintiffs, entered into a contract for the sale of the property for the sum of $1.035 million. This contract provided for settlement on 24 January 2010. Settlement has not yet occurred due to the presence of the caveat against the title to the property.

11        On 21 January 2010, Kent wrote to the first defendant seeking a withdrawal of the caveat. Considerable correspondence then ensued over the next few weeks between Kent and Jonathan David Stafford Burman (“Burman”), a director of the first defendant, with the first defendant offering to withdraw the caveat provided the sale proceeds were held in trust until matters in issue between it and the plaintiffs were resolved. Slight variations of this offer were also made.

12        Matters did not resolve between the plaintiffs and the first defendant, and shortly thereafter this proceeding was issued.

13        The second defendant, the Registrar of Titles, has indicated it does not intend appearing in the action.

14        I turn to consider the basis upon which the first defendant claims an interest in the property. This is set out in an affidavit of Burman sworn 5 March 2010. He deposes that pursuant to a Joint Venture Agreement (“the JVA”) dated 26 September 1999 between the first defendant and Deakin Assets Pty Ltd (“Deakin”) of the one part, and Paul Egan (“Egan”) of the second part, Egan, then a solicitor, purchased the property as nominee for the first defendant and Deakin, and that Egan held the property for and on behalf of the first defendant and Deakin. Burman deposes that the second defendant paid the whole deposit on the purchase of the property on 26 September 1999 and subsequently the balance of the purchase price for the property which remained after allowing for a mortgage advance obtained. Egan was registered as proprietor on 24 December 1999.

15        The JVA provided in Clause 3.03 that Egan would execute a second mortgage over the property to secure payment to the first defendant of monies owing to it under the JVA. Such a second mortgage was never executed.

16        The JVA provided that the first defendant was to have a one-third share in the joint venture, and Deakin a two-thirds share. Clause 12.01 of the JVA provided that it was to expire on 26 September 2001. Burman deposes that pursuant to the JVA, as at 31 January last, the first defendant was owed $211,891.00, comprising $76,000.00, being the balance of the initial advance of $126,000.00 after taking into account a re-payment of the sum of $50,000.00 made on approximately 17 June 2002 and interest calculated daily at the rate of 15 per cent per annum from 26 September 1999 to 26 September 2001. In the course of the hearing, Mr Shepherd, who appeared for the first defendant, stated that the sum outstanding to the first defendant was not $211,891.00 but $212,992.00. In a written submission made by him in opposing the application, Mr Shepherd stated that the balance owing was $112,992.00. I suspect that this is the correct sum outstanding. In the end, nothing turns on this. The relevant matter is that the first defendant claims to be entitled to monies due pursuant to the JVA and also claims an entitlement to a one-third share of the property under a constructive trust between Bortelli and it.

17 The property was transferred from Egan to The T Group Pty Ltd by a transfer dated 15 June 2001 registered in Dealing X722515C. The consideration was stated to be “entitled in equity” and no stamp duty was paid on the transfer. It was stamped “not chargeable pursuant to Heading 6, exemption E23”. By a transfer dated 10 December 2004, The T Group Pty Ltd transferred the property to Bortelli. This transfer is registered in dealing AD327239S. Again, the consideration is stated to be “entitled in equity” and again the transfer was exempt from stamp duty. It is stamped “Original Land Transfer Except S.33- 3”). Section 33 of the Duties Act 2000 is entitled “Change in trustees”. It provides, generally, that no stamp duty is payable on account of the appointment of a new trustee.

18        Burman claims that both The T Group Pty Ltd and then Bortelli held the property subject to the same equitable entitlement of the first defendant as Egan did.

19        Burman deposes that he was not aware of the transfers of the property from Egan to The T Group Pty Ltd and from The T Group Pty Ltd to Bortelli, and that when he became aware of this he then consulted Aitken Partners Lawyers which led to the lodging of the caveat on 5 December 2008, almost four years after the transfer of the property to Bortelli.

Relevant Legal Principles and their Application

20 The approach to be taken on an application pursuant to s.90(3) of the Act is conveniently set out by Dodds-Streeton J in Goldstraw v Goldstraw [2002] VSC 491, at paragraph 30:

“S.90(3) is in the nature of a summary procedure analogous to the determination of interlocutory injunctions. The Court's power under s.90(3) is discretionary. In that context, it is recognised that the caveator bears the onus of establishing that there is a serious question to be tried that he or she does have the estate or interest in the land claimed. That is, 'in order to resist successfully the applications for removal of caveats (the caveator's) arguments must be directed towards the assertion of an interest in the subject land in the light of relevant principles of property and equity law’. Further, if the caveator does establish the serious question to be tried in relation to the estate or interest claimed, the weight of authority indicates that the caveator must further establish that the balance of convenience favours the maintenance of the caveat until trial.”

21        In Schmidt v 28 Myola Street Pty Ltd (2006) 14 VR 447, Warren CJ stated, at 457:

“… the proper exercise of the discretion under s 90(3) will involve considering: in which party’s favour the balance of convenience lies; whether there is a serious question to be tried; and whether the caveator claims an interest wider than what the caveator may be entitled. These questions inform the ultimate consideration, that is, whether the caveator has discharged his or her onus of justifying the maintenance of the caveat. The process is comparable to the exercise undertaken in granting or denying an interlocutory injunction. … .”

22        Again, in Dennis Hanger Pty Ltd v Brown [2007] VSC 495, the Chief Justice stated, at paragraph 33:

“In an application for the removal of a caveat, the following broad

principles apply:

• 1. The Court has a wide discretion under s 90(3);

• 2. The onus is on the caveator to justify the maintenance of the caveat;

• 3. The caveator must persuade the Court that there is a serious question to be tried as to the existence of the equitable interest claimed to support the caveat. If there is a serious question to be tried, the Court will not normally order the removal of the caveat on the basis of affidavit evidence, unless the balance of convenience favours removal.”

23 Mr Arthur, who appeared for the plaintiffs, submitted that here there were no serious questions to be tried. Not surprisingly, he relied heavily upon sections 42 and 43 of the Act which give paramountcy to the Register. He noted the reference in section 43 of the Act to “notice actual or constructive of any trust or unregistered interest”. He relied upon the comment of Mason CJ and Dawson and McHugh JJ in Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407, at 418:

“… the effect of the registration of a subsequent dealing bringing about the registration of proprietorship of an estate or interest in land is to extinguish all prior unregistered estates or interests which, but for that registration, would have conflicted with the proprietor's estate or interest or encumbered that estate or interest, unless the prior unregistered estate or interest falls within the exceptions to indefeasibility of title mentioned in s68. In other words, a person seeking to preserve an unregistered interest not falling within those exceptions must register that interest in advance of the registration of a subsequent inconsistent dealing or prevent such registration by caveat or otherwise, and thereby enable registration of the unregistered interest. Once that interest is defeated by registration of a subsequent inconsistent dealing bringing about the registration of a new proprietor, the first interest is extinguished for all purposes and cannot be asserted against any later proprietor. … .”

24        He also relied upon a comment of Warren J (as she then was) in Law Mortgagees Queensland Pty Ltd v Thirteenth Corp Pty Ltd [1999] VSC 360, at paragraph 14:

“However, even if the interest claimed in the caveats had existed prior to registration of the plaintiff's mortgage, the caveats must still be removed because notwithstanding the order of creation of the interest claimed by the Thirteenth Corp and of the plaintiff's mortgage, in the absence of fraud, the plaintiff as registered mortgagee holds its registered estate in the Land free of the claims of Thirteenth Corp. So much arises from s42 of the Transfer of Land Act 1958. … .”

25        Here, too, the first defendant claimed that it had a caveatable interest prior to the registration of the mortgage. Here, too, he submitted there is no allegation of fraud as that word is construed in the context of Torrens statutes. In Law Mortgagees Queensland Pty Ltd, Warren J, quoted with approval Gibbs J (as he then was) in Friedman v Barrett; ex parte Friedman [1962] Qd R 498, at 512:

“…

‘ ... It is now very well established, in relation to the Torrens statutes of most of the States and New Zealand, that 'fraud' means actual fraud - dishonesty of some sort - and not what has been called constructive or equitable fraud’.”

26        Mr Arthur also relied upon the decision of Harper J in Perpetual Trustees Victoria Ltd v Gheorghui [2007] VSC 412. There, too, there was a mortgagee in possession. The wife of the mortgagor, subsequent to the registration of the mortgage, lodged a caveat claiming an estate in fee simple pursuant to a constructive trust. On the basis of sections 42 and 43 of the Act, His Honour held that there was no serious issue to be tried on the question of whether the caveator had a caveatable interest.

27        Mr Shepherd, who appeared on behalf of the first defendant, submitted that there were serious questions to be tried.

28        He relied upon the fact that Rotman & Morris, solicitors, lodged both the transfer dated 17 December 2004 transferring the property from The T Group Pty Ltd to Bortelli, and also the mortgage. He submitted that the Court should infer that the mortgagees, through their solicitors, had direct knowledge of Bortelli holding the property as trustee for the first defendant.

29 In my view, given the wording of section 43 of the Act and the interpretation given to it in Law Mortgagees Queensland and Friedman v Barrett, there is no merit in this submission.

30        Mr Shepherd submitted that there was a question to be tried as to whether the sale of the property on 24 October 2009 was authorised by the mortgagees when the fourth mortgagee had already died on 8 September 2009.

31        He submitted that there was a question to be tried with respect to the sale of the property at a price of $1.035 million, which arguably was less than its true value. There was no evidence before me that the plaintiffs, in exercising their power of sale, had not performed the duties imposed upon mortgagees in such a situation. In any event, Kent deposes that after the sale there will still be a shortfall in the sum owing to the mortgagees. In those circumstances, it is reasonable to infer that the mortgagees obtained the best purchase price available.

32 He submitted that the Notice to Pay dated 3 June 2009 should have been served on the first defendant since section 76(1) of the Act required the Notice to be served upon “such other persons as appear by the Register to be affected”. He referred to Croft “The Mortgagee’s Power of Sale”, paragraph

[50] : 

“As there is no authority on the question it is thought that the safe approach in view of the general law rule enunciated in Hool v Smith (1881) 17 Ch D 434 is for the mortgagees to search the Register Book and give notice to all persons who have any interest in the mortgaged land. This would include caveators for although caveats are lodged not registered … they are ‘apparent’ in the Register Book.”

33        I further note the comment in Croft, at paragraph [53]:

“Thus a mortgagee who fails to give notice to a person so entitled is liable to pay damages to that person for exercising the power of sale without notifying him. The loss suffered by that person flows from his inability to redeem the mortgage and prevent the exercise of the power of sale.”

34 As appears, at best, the first defendant would have a claim for damages should there be non-compliance with section 76 of the Act.

35 It seems clear on the authorities that a defective section 76 Notice to Pay does not give rise to a caveatable interest. In Moran v Cuthberts Nominees Pty Ltd (1997) V ConvR 54-566, at paragraph 6, Harper J, stated:

“… If a mortgagor cannot rely upon a defective notice as supporting an application for an injunction, it is even less open to a second mortgagee to do so.”

and it might be said, even less open to a caveator.

36        Finally, Mr Shepherd submitted that the mortgage “secured nothing”. He submitted that the Memorandum of Common Provisions AA690 which was incorporated into the mortgage, was inappropriate for this mortgage. He referred to the loan being from IMMS to Bortelli, yet it was not the mortgagee, the complication of the involvement of AFL and the absence of a covenant to pay. He further submitted that the Consumer Credit Code applied, that it was not complied with and that this was fatal to the mortgagees. In any event, the loan to Bortelli was renewed in October 2005, February 2007 and January 2008. Clearly, monies were advanced pursuant to the mortgage and interest payments were made until default occurred on 20 March 2008. At no stage has Bortelli alleged that the mortgagees were not acting as they were entitled to do.

37        Assuming for the purposes of this application that there is a constructive trust in favour of the first defendant, which Mr Arthur disputes, there is a ready answer to the matters raised by Mr Shepherd.

38        The indefeasibility provisions of the Act, particularly sections 42 and 43, in my view, provide that any interest in the property which the first defendant could assert against the mortgagees was extinguished prior to the registration of the mortgage in December 2004. This clearly follows from Leros. Prior to the registration of the mortgage in December 2004 and subsequent to Egan’s being registered as proprietor of the property, there had been five mortgages registered against the title to the property as well as the transfer of registered proprietorship to The T Group Pty Ltd.

39        The first defendant had adequate opportunity to protect its interest under the JVA by having Egan execute a second mortgage in its favour pursuant to Clause 3.03 of the JVA or by lodging a caveat prior to the registration of the mortgage on 17 December 2004. It chose not to do so.

40        Clause 12.01 of the JVA provided that the investment which it evidenced was to last “for a period of two years or until terminated by mutual agreement of the Joint Venturers or on the sale of the property”. Correspondence between Burman and Kent in January and February 2010 indicates, in my view, that Burman had an extremely good grasp of the provisions of the Act and of the first defendant’s rights. It seems very strange and was not explained why Burman did not take adequate steps to protect the first defendant’s interests, particularly in June 2002 when the sum of $50,000 was repaid.

41        Mr Shepherd spent some time cross-examining Kent with respect to the two affidavits sworn by him. In view of the approach I have taken, it is not necessary for me to refer to this cross-examination.

Conclusion

42        I conclude that there are no serious questions to be tried and that the caveat should be removed. There is no point in imposing conditions upon the removal of the caveat given that I have concluded that there are no serious questions to be tried.

43        I will hear from the parties as to the appropriate form of orders to make.

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