McDonald v Bowen and Pomeroy Pty Ltd
[2011] VCC 979
•3 June 2011
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-10-01595
| JOHN McDONALD | Plaintiff |
| v | |
| BOWEN & POMEROY PTY LTD | Defendant |
| (ACN 804 174 887) | |
| -and by Counterclaim- | |
| BOWEN & POMEROY PTY LTD | Plaintiff by Counterclaim |
| (ACN 804 174 887) | |
| v | |
| JOHN McDONALD | Defendant by Counterclaim |
---
| JUDGE: | HIS HONOUR JUDGE SHELTON |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 18 May 2011 |
| DATE OF JUDGMENT: | 3 June 2011 |
| CASE MAY BE CITED AS: | McDonald v Bowen & Pomeroy Pty Ltd |
| MEDIUM NEUTRAL CITATION: | [2011] VCC 979 |
REASONS FOR JUDGMENT
---
Catchwords: Priority of competing equitable interests in land – failure to lodge caveat to protect earlier interest – exception to principle qui prior tempore potior jure est – unconscionability and detriment – Mimi v Millennium Developments Pty Ltd (2004) ConvR 54 687
---
| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R Cook | S V Winter & Co |
| For the Defendant | Mr D P Lloyd | Aughtersons |
| HIS HONOUR: |
1 Counsel for the defendant, Mr Lloyd, correctly states in paragraph one of his outline of submissions:
“The dispute between the parties is one between the holders of competing equitable interests in land under the Transfer of Land Act 1958. The question for determination is, which one has priority?”
2 The relevant facts are generally not in dispute.
The Facts
3 On 15 February 2007, Geoffrey Carl Tattam (“Tattam”), the registered proprietor of the property at 2 Comport Street, Beaumaris, being the land contained in Certificate of Title Volume 10902 Folio 927 (“the property”) mortgaged the property to the plaintiff to secure a loan of $200,000 made pursuant to a deed of the same date. Actually, the mortgage shows the mortgagor as the plaintiff and Tattam as mortgagee. Obviously the names have been incorrectly transposed. Nothing turns on this. The mortgage was not registered on title. It is not in issue, however, that the execution of the mortgage gave the plaintiff an equitable interest over the property. The plaintiff only lodged a caveat over the property 25 September 2008.
4 Meanwhile, at the time that Tattam gave the mortgage over the property, Carmine Group Pty Ltd (“Carmine”), a building company of which he was a director, was applying to the defendant, a timber merchant, for credit. A written application entitled “Commercial Credit Application & Supply Agreement” signed by Tattam on behalf of Carmine was dated 10 January 2007 (“the Application”) and a document entitled “Personal Guarantee and Equitable Charge” (“the Guarantee”) was signed by Tattam on 21 February 2007. It is common ground that these two documents were only received by the defendant on 27 February 2007. The Guarantee contained the following clause:
“EQUITABLE CHARGE
2: In the event of any default by the Customer WE HEREBY CHARGE the land described in this Commercial Credit Application and Supply Agreement and all other land owned by us from time to time with payment of any amounts due by the Customer and hereby authorise you to register such charge or caveat such land to better secure such moneys due pursuant to this guarantee and further indemnify and guarantee payment to you of all legal costs in respect to the charge and caveat. We also agree, if requested by the supplier, to execute any other documents in registerable form to better secure this equitable charge.”
5 The land described in the Application is 2 Comport Street, Beaumaris. It is not in issue that this clause gave the defendant an equitable interest in the property, although there is some dispute as to when this interest was created. On the basis of this clause, the defendant lodged a caveat over the property on 30 October 2007.
6 Alan Hassan, who has been group credit manager for the defendant for about twenty years, gave evidence that as part of the task of checking the credit worthiness of Carmine, he obtained a title search of the property on 9 March 2007. This showed the property registered in the name of Tattam, and with the only encumbrance a mortgage to Adelaide Bank Ltd. He stated that in addition he carried out a credit check and nothing adverse was found. He stated that he did not make any enquiries as to the amount secured by the Adelaide Bank Ltd mortgage. He proceeded on the basis that banks normally do not advance beyond eighty to ninety per cent of the value of a property and there was only the one encumbrance on the title.
7 He stated that in 2007, approximately one in twenty properties given as security by customers of the defendant had more than one encumbrance on them. He stated that if everything else “stacked up”, then a credit line would be given. On 13 March 2007, the defendant wrote to Carmine stating that credit to the sum of $30,000 had been approved by the defendant. Hassan stated that the defendant only lodged a caveat on the title to a property over which it had an equitable interest such as that given by Clause 2 of the Guarantee where there had been default. In October 2007, Carmine owed the first defendant $106,218.77 and therefore the defendant lodged the caveat over the property on 30 October 2007.
8 In Supreme Court action 8518 of 2009, Tattam brought proceedings against the defendant in this proceeding and the Registrar of Titles seeking the removal of the defendant’s caveat dated 30 October 2007. The property had been sold but settlement had not occurred. On 10 September 2009, Forrest J in this action ordered that at settlement the net proceeds from the sale of the property be held in a joint account in the names of the parties to this proceeding pending agreement between the parties or Court order as to its disbursal. There is approximately $75,000 plus interest presently in the joint account. Forrest J also ordered that the defendant’s caveat over the title of the property be removed.
The Law
9 In Mimi v Millennium Developments Pty Ltd (2004) V ConvR 54 687, Nettle J stated:
“23 The principles which govern priorities as between competing equitable interests in Torrens title land in this State were considered by the Appeal Division in Jacobs v Platt Nominees Proprietary Ltd …. Plainly one starts with the position that the interest which is first in time will prevail, qui prior tempore potior jure est, but that may change where the prior equitable interest holder has acted in such a way that it would be unconscionable if his interest were to prevail over the subsequent interest holder.
24 Jacobs v Platt Nominees lays down authoritatively that mere failure to lodge a caveat is not enough in itself to postpone a prior equitable interest holder to a subsequent equitable interest, even where the subsequent interest has been acquired bona fide and for value without notice and on faith of the title. In so doing it reflects the conclusions reached by Barwick CJ in J & H Just Holdings Proprietary Ltd v Bank of New South Wales.
25 Jacobs v Platt Nominees, recognises, however, as indeed was recognised by Barwick CJ in J & H Just Holdings, that there may be situations in which failure to caveat, when combined with other circumstances, justifies the conclusion that the ‘act or omission proved against’ the possessor of the prior equity ‘has conduced or contributed to a belief on the part of the holder of the subsequent equity at the time when he acquired it that the prior equity was not in existence.’ When that occurs priority may be reversed.
26 As Bryson J pointed out in Double Bay Newspapers Pty Ltd v A W Holdings Pty Ltd:
‘Examples of those circumstances occur where the holder of a late interest search of the register found not such information as lodgment of a caveat would have put there and acted in reliance on the apparent absence of any such interest. As is shown by J & H Just Holdings, where these circumstances exist, they may not be the only significant circumstances and they may be outweighed by other circumstances.’
27 In short, priority which might otherwise exist according to the time at which an interest was acquired may be lost where some act or omission by the holder of the earlier interest has led the holder of a later interest to acquire his interest upon the supposition that the earlier did not exist.”
… 32
Furthermore, in Jacobs it was plain that there was no detriment in the relevant sense. There had been a change of position by the subsequent interest holder, but mere change of position was not enough to postpone an interest earlier in time to one subsequently created. Ordinary principles require that a party who seeks to reverse the order of priorities must show not only change of position but also that he has suffered detriment by reason of the failure of the earlier interest holder to caveat.
… 39
I proceed on the basis laid down in Jacobs that in order to postpone a prior equitable interest holder the subsequent holder must show not only that there has been an act which is capable in all the circumstances of being regarded as unconscionable (such as, for example, the failure to lodge a caveat), but also detriment which renders that act unconscionable. I conclude that in this case those conditions are satisfied, because of the detriment which would be suffered by the third and fourth defendants if they were not accorded priority.”
(My emphasis)
Discussion and Conclusion
10 Here, clearly, the plaintiff failed to lodge a caveat to protect its equitable interest created on 15 February 2007. As to detriment which is additionally required, the defendant relies upon its having provided goods to the defendant on the basis of a title search conducted on 9 March 2007 which did not disclose the plaintiff’s prior equitable interest. The defendant then obtained judgment in this Court against Tattam in a separate proceeding for the sum of $106,218.77 plus interest of $34,108.64 and costs. Mr Lloyd, who appeared for the defendant, submitted that if the plaintiff’s equitable interest were not postponed to give priority to the defendant’s equitable interest, the plaintiff would be paid the sum held in trust plus any interest accrued upon it in part satisfaction of the sum of $200,000 it had advanced and then the plaintiff would receive nothing thereby suffering detriment.
11 Mr Cook, who appeared for the plaintiff, submitted, firstly, that the charge in favour of the defendant was created on 21 February 2007, the date of the Guarantee. He particularly relied on the words “WE HEREBY CHARGE”. If so, the search by Hassan on 9 March 2007 would not be of any relevance. I do not accept this submission. Firstly, it was necessary for the giving of the charge to be communicated to the defendant, then the defendant only received the Guarantee on 27 February 2007. Secondly, and importantly, in my view, the Guarantee and its terms only took effect when the Application was accepted. Until then, there was no contractual relationship between Carmine and the defendant. There was only the Application supported by a Guarantee until the Application was accepted by the defendant’s letter to Carmine of 13 March 2007.
12 Mr Cook further submitted that even if the plaintiff had lodged a caveat on the basis of its equitable interest created on 15 February 2007, the defendant would still have extended credit to Carmine given Hassan’s evidence that in about one in twenty cases there was more than one encumbrance on title when a credit application was approved, together with the somewhat casual approach by Hassan in failing to investigate the sum covered by the mortgage to Adelaide Bank Ltd. Further, the fact that the caveat was only lodged by the defendant when default had occurred, showed a fairly casual and lax attitude by the defendant. I agree with Mr Lloyd’s submission that this is mere speculation as to what Hassan might have done had a caveat been lodged by the plaintiff.
13 The plaintiff had a period of twenty-two days between 15 February 2007 and 9 March 2007 to take the simple step of lodging a caveat to give notice of its equitable interest and to protect it. It failed to so and must bear the consequences.
14 It was not suggested on behalf of the plaintiff that there was not sufficient time for the plaintiff to lodge a caveat. Rather, the plaintiff attested in an affidavit sworn 9 September 2009 in the Supreme Court proceeding, which the plaintiff relied upon in this proceeding, that he was aware of his entitlement to lodge a caveat or register the mortgage on the title to the property to secure his position but did not do so since he was advised by Tattam’s solicitor, who was also acting for him in the loan transaction and is acting for the plaintiff in this proceeding, that there was no need to take such a step.
15 I conclude that the defendant’s equitable interest has priority. The defendant succeeds.
16 I will hear from the parties on the appropriate orders to be made and as to costs.
- - -
0