Milenkovic v Belleli
[2015] VSC 349
•20 July 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2013 3286
| JASMINA MILENKOVIC | Plaintiff |
| v | |
| JERRY BELLELI | First Defendant |
| BRENDAN KING | Second Defendant |
| LEGAL CHICKS PTY LIMITED | Third Defendant |
| - and - | |
| JERRY BELLELI | First Plaintiff by Counterclaim |
| BRENDAN KING | Second Plaintiff by Counterclaim |
| LEGAL CHICKS PTY LIMITED | Third Plaintiff by Counterclaim |
| v | |
| JASMINA MILENKOVIC | Defendant by Counterclaim |
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JUDGE: | Lansdowne AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 3, 4, 5 and 31 March 2014 |
DATE OF JUDGMENT: | 20 July 2015 |
CASE MAY BE CITED AS: | Milenkovic v Belleli and ors |
MEDIUM NEUTRAL CITATION: | [2015] VSC 349 |
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PAYMENT OUT FROM FUNDS IN COURT – competing claims for funds being the residue of mortgagee sale – plaintiff the wife of the former registered proprietor – plaintiff claims an interest by way of trust as to one half of his beneficial interest and a secured interest by way of loan and charge in respect of the other half - whether the plaintiff’s claimed interests were created – whether the plaintiff’s claimed interests, if they were created, were shams – construction of the terms of the charge taken by the first and second defendants – calculation of the amount secured by that charge - whether the plaintiff gave notice of her interests to the first and second defendants – whether the first defendant gave notice of the charge taken by the first and second defendants to the plaintiff – consideration of the interest acquired by the third defendant as purchaser at a sheriff’s auction – whether the plaintiff’s interests should be postponed to those of the defendants by reason of her failure to lodge a caveat or untruthful evidence in relation to disclosure – doctrine of ‘unclean hands’ - the plaintiff’s claimed interest by way of trust found to exist and not be a sham – the plaintiff’s claimed interest by way of loan found to be a sham – defendants failed to show that the plaintiff’s interest by way of trust should be postponed to that of the first and second defendants’ by way of charge, or to that of the third defendant as purchaser at the sheriff’s auction.
Sharrment Pty Ltd and ors v Official Trustee in Bankruptcy (1988) 18 FCR 449; Jacobs v Platt Nominees Pty Ltd and ors [1990] VR 146; Black Uhlans Incorporated v New South Wales Crime Commission and ors [2002] NSWSC 1060 considered and applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J L Evans | Pryles & Co |
| For the Defendants | Mr M Campbell | Belleli King & Associates |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 2
Outline of the facts........................................................................................................................ 2
Relevant procedural matters....................................................................................................... 5
Credit.............................................................................................................................................. 5
Issues.................................................................................................................................................... 7
Plaintiff’s assertion of an acknowledgement of trust (‘Milenkovic Trust’)......................... 7
Plaintiff’s claim of a charge over Mr Milenkovic’s interest in the property (‘Loan Agreement’ and ‘Charge’)................................................................................................................................ 7
Defendants’ claim of a charge in June 2006 (‘BKA Charge’)................................................... 7
Claimed interest by Legal Chicks (‘Legal Chicks’ interest’)................................................... 8
Priority............................................................................................................................................ 8
Summary of conclusions................................................................................................................... 8
Milenkovic Trust................................................................................................................................ 9
Contributions............................................................................................................................... 11
Execution of the Acknowledgement of Trust......................................................................... 14
Was the Milenkovic Trust a sham?.......................................................................................... 17
No prompt lodgement of a caveat.................................................................................. 19
Loan from Liberty Funding............................................................................................. 20
Loan from the CBA............................................................................................................ 21
Loan Agreement and Charge........................................................................................... 22
Non disclosure to BKA..................................................................................................... 22
Refinance by Westpac....................................................................................................... 22
Ares Global caveat............................................................................................................. 25
Significance of non-disclosure to lenders...................................................................... 25
Sheriff’s auction.................................................................................................................. 30
Exercise of power of sale by Westpac............................................................................ 31
Conclusion.......................................................................................................................... 33
Loan Agreement and Charge......................................................................................................... 34
BKA Charge....................................................................................................................................... 43
Notice of the plaintiff’s interests to BKA, and the BKA Charge to the plaintiff................ 46
Meetings prior to execution of the BKA Charge........................................................... 46
Execution of the BKA Charge.......................................................................................... 52
Request for security for counsel fees.............................................................................. 53
Meeting on 21 July 2006.................................................................................................... 57
What did the BKA Charge secure?........................................................................................... 59
What is the amount secured?.................................................................................................... 60
Interest acquired by Legal Chicks................................................................................................ 63
Priority................................................................................................................................................ 65
Legal principles........................................................................................................................... 65
Postponement of the Milenkovic Trust to the BKA Charge................................................. 69
Conclusion.......................................................................................................................... 78
Postponement of the Milenkovic Trust to the interest acquired by Legal Chicks............ 78
Conclusions and orders.................................................................................................................. 82
HER HONOUR:
Introduction
This trial concerned four competing claims in respect of the sum of $224,900.48 which was paid in to Court on 24 April 2013 following a mortgagee sale.
Outline of the facts
The property that was sold is known as 29 Stanley Street, Brunswick (‘Stanley St’ or ‘the property’). The registered proprietor of the property from 25 May 1999 was Mr Milic Milenkovic, the husband of the plaintiff. The plaintiff contends that Mr Milenkovic executed an Acknowledgement of Trust in her favour on or about 2 June 1999 by which he declared and acknowledged that he held a one-half undivided interest in the property on trust for her.
The plaintiff also contends that in November 2005 her husband charged his remaining interest in the property as security for repayment to her of a loan of $150,000 which she made to him. The plaintiff contends that by the last date of her calculations of the amount outstanding, 1 September 2012, the amount outstanding under this loan agreement was $280,754.58.[1] As is plain, that sum alone exceeds the amount in funds in court, irrespective of the plaintiff’s claimed interest by way of trust. The plaintiff did not lodge a caveat in respect of any claimed interest in the property until 19 January 2011. The caveat she lodged on that date referred to an interest by way of constructive trust only i.e. it did not, in terms, refer to either of the documents on which she now relies.
[1]JM-5 to her first affidavit sworn 26 June 2013, which is Exhibit A.
The plaintiff claims the whole of the funds in court.
The first and second defendants are solicitors who practice in a firm Belleli King & Associates (‘BKA’). The first defendant acted for Mr Milenkovic and a company associated with him in a proceeding in the Victorian Civil and Administrative Tribunal (‘VCAT’ or ‘the Tribunal’) from 2005 to February 2008. They claim an interest in the funds in court pursuant to a charge granted to BKA by Mr Milenkovic on 21 June 2006 in respect of legal costs he had incurred and was to incur in the course of that proceeding. BKA lodged a caveat on the property claiming an interest under this charge on 29 February 2008. The first and second defendants say that they were unaware of the plaintiff’s claimed interests at the time of their charge in June 2006, and also at the time that they lodged their caveat in February 2008.
BKA obtained a judgment from the Magistrates’ Court for unpaid legal fees against Mr Milenkovic on 14 January 2009 for $49,263.97. BKA, by this stage a caveator in respect of Stanley St, was notified by Westpac on 23 July 2009 that Mr Milenkovic was in default under its first registered mortgage. BKA unsuccessfully sought to enforce its judgment by warrant issued from the Magistrates Court in November 2009. BKA then obtained from this Court on or about 4 May 2010 a warrant of seizure and sale of Mr Milenkovic’s interest in Stanley St. Mr Belleli says that he searched the title when he caused that warrant to issue. Search of the title to Stanley St at that time would not have shown any claimed interest by the plaintiff. She lodged her caveat on 19 January 2011, the day before the Sheriff’s auction pursuant to the warrant.
The third defendant (‘Legal Chicks’) is a service company for BKA. The first and second defendants are directors of Legal Chicks. The Sheriff conducted a sale of Mr Milencovic’s interest in Stanley St by auction on 20 January 2011. The third defendant purchased what was expressed to be ‘all my estate in fee simple in the land’ from Mr Milenkovic, by transfer from the Sheriff on that day, for $23,000. Mr Belleli did not conduct a title search of Stanley St immediately prior to the auction. The Sheriff paid the amount paid by Legal Chicks, less his costs, to the first and second defendants in partial satisfaction of the judgment.
The balance of the judgment in favour of BKA, together with further costs and interest, remains unsatisfied. The first and second defendants seek payment out from the funds in court of the sum secured by the charge granted to BKA, less the amount paid to them pursuant to the Sheriff’s auction.
Legal Chicks seeks the balance of the funds following payment to the first and second defendants on the basis that Mr Milenkovic as registered proprietor would have been entitled to the balance of the funds, and Legal Chicks purchased his interest at the Sheriff’s auction. The claim by Legal Chicks assumes that the plaintiff’s claimed interests are not proved.
Legal Chicks lodged a caveat on the title recording its interest as purchaser at the Sheriff sale on 20 January 2011, and sought and obtained the consent of Westpac to register the transfer. Mr Belleli contends that he only became aware of the plaintiff’s caveat, lodged 19 January 2011, when the transfer was lodged for registration.[2] Sale of the property at the instance of Westpac as mortgagee in possession took place in March 2012, and settled on 9 May 2012.[3] For reasons that are not clear, the transfer reflecting that sale was not registered until 17 October 2012. As the plaintiff and the defendants were unable to reach agreement as to payment of the surplus, the mortgagee paid those funds into court in April 2013.
[2]Affidavit of Jerry Belleli affirmed 24 February 2014, which is Exhibit 7, at [65].
[3]Letter dated 11 May 2012 from Gadens, solicitors for Wespac, to, inter alia, BKA, which is Exhibit JB-5 to affidavit of Jerry Belleli affirmed 17 July 2013. That affidavit became Exhibit 6.
Both of the interests claimed by the plaintiff precede in time the interests claimed by the first and second defendants and by the third defendant. The defendants do not admit the interests claimed by the plaintiff. In the alternative, they contend that if the documents on which she relies are proved, they were not intended to create the legally enforceable rights and obligations that they purport to create. The defendants submit that, in this sense, the documents were shams.
In the further alternative, if one or both of the plaintiff’s claimed interests is proved, the defendants claim that their interests should take priority.
In respect of the interests claimed by the defendants, the plaintiff concedes that Mr Milenkovic executed the charge on which the first and second defendants rely. She disputes the nature of what was secured, and its amount. In relation to the third defendant, the plaintiff concedes that Legal Chicks acquired an interest by reason of the Sheriff’s auction. She disputes, however, the extent of the interest so acquired. The plaintiff asserts that her interests should take priority as being first in time.
Relevant procedural matters
First, I express my regret and my apologies to the parties for the delay in the delivery of these reasons for judgment.
The proceeding commenced by originating motion filed by the plaintiff. I subsequently directed that the parties file pleadings. The evidence in chief was given on affidavit. The evidence was transcribed, but unfortunately there is no transcript of the final day, 31 March 2014, on which day counsel spoke to their written closing submissions. I did, however, take notes of the points on which the parties diverged from or elaborated their written closing submissions, and those notes can be made available if typed form if required.
On that day, the defendants sought leave to amend their Points of Defence and Counterclaim so as to make explicit in their pleading what had been agitated by their written opening submissions and cross examination of the plaintiff and Mr Milenkovic. I granted that leave, which was, after consideration by counsel for the plaintiff, not opposed. Counsel for the plaintiff withdrew those aspects of his written closing submissions which contended that the defendants should be held to their original pleading. By Points of Amended Defence and Counterclaim sent to the Court by email on 2 April 2014 the defendants contend that if the Acknowledgement of Trust was executed as alleged (which is not admitted) then the plaintiff and Mr Milenkovic did not intend it to effect any change in Mr Milenkovic’s legal or beneficial ownership of the property. They similarly contend that if the loan agreement on which the plaintiff relies was executed as alleged (which is not admitted) then the plaintiff and Mr Milenkovic did not intend it to create a relationship of lender and borrower between them.
Credit
In respect of the disputes as to whether the plaintiff’s interests were created, whether or not the first defendant (‘Mr Belleli’) was on notice of the plaintiff’s claimed interests, and whether he disclosed the BKA Charge to the plaintiff at an early stage, there are substantial issues of credit that arise.
On these issues witnesses gave directly conflicting evidence. The defendants submit that the plaintiff and Mr Milenkovic were untruthful on these matters. They rely on what they say was untruthfulness in relation to priority of the competing interests. It has accordingly been necessary to assess the reliability of the contested evidence, including, where a submission to that effect is put, whether or not it is likely truthful. This determination is also relevant to the credit of those witnesses generally.
Five witnesses gave evidence. The only two whose evidence I accept without reservation are Ms Stankovska, in the plaintiff’s case, and Mr Rewell, in the defendants’ case. Both of those witnesses were relatively disinterested in the outcome, and each gave straightforward and convincing evidence. For reasons that I will elaborate later in detail, I have concluded that the evidence given by the plaintiff and Mr Milenkovic that they disclosed her claimed interests in the property to the first defendant at a meeting in June 2006, inferentially before Mr Milenkovic gave the defendants their charge, is not correct. I also find that, at least in the case of the plaintiff, it is untruthful. In the case of Mr Milenkovic, I think it likely that the evidence is deliberately untrue. I distinguish between them having regard to the nature of their evidence generally.
In the case of the plaintiff, generally she gave her evidence in a very disciplined and self-contained manner. That degree of care suggests that evidence I have found to be incorrect, is deliberately so. Further, the plaintiff under cross examination effectively excluded the possibility of mere faulty recall.[4] Mr Milenkovic’s evidence on this claimed meeting essentially duplicated that of the plaintiff, but with less apparent independent recall. He gave most of his evidence in a rambling, often unresponsive, manner which showed abiding deep anger at the outcome of the VCAT proceeding and the legal fees charged by his former solicitor, the first defendant. I think it likely that this anger and his desire to support his wife’s case has at best coloured his recall, and at worst led him to give untruthful evidence.
[4]T 60.30-31 and T 61- T 64.13.
This conclusion is relevant to my assessment of the evidence of the plaintiff and Mr Milenkovic generally. Nevertheless I do accept their evidence in other respects, even if not independently corroborated, in particular in relation to their evidence of events less directly related in time and context to the VCAT litigation in which the first defendant acted for Mr Milenkovic.
In relation to Mr Belleli, I do not accept his evidence that he referred to the charge that his firm had taken over the property for legal costs, in a meeting with the plaintiff and Mr Milenkovic a month after it had been given. I find that this evidence is unreliable. Mr Belleli’s recollection of relevant events was poor, and generally I accept his evidence only where supported by other evidence.
Issues
The parties agree that the issues they ventilate can be broadly summarised as follows:
Plaintiff’s assertion of an acknowledgement of trust (‘Milenkovic Trust’)
1.Was the deed purporting to acknowledge the trust executed as claimed?
2.If so, was it, as the defendants contend, a sham?
Plaintiff’s claim of a charge over Mr Milenkovic’s interest in the property (‘Loan Agreement’ and ‘Charge’)
3.Was the Loan Agreement executed as claimed?
4.If so, was it, as the defendants contend, a sham?
5.If given and not a sham, what is the amount of the debt which it secures?
Defendants’ claim of a charge in June 2006 (‘BKA Charge’)
6.What interest of Mr Milenkovic in Stanley St was charged?
7.Did the charge secure the legal costs of Belleli King & Associates (‘BKA’) or only disbursements?
8.What is the amount of the debt which it secures?
Claimed interest by Legal Chicks (‘Legal Chicks’ interest’)
9. What interest in the property did Legal Chicks acquire as purchaser at the Sheriff’s auction?
Priority
10.Was Mr Belleli on notice of the plaintiff’s claimed interest at the time of the BKA Charge?
11. In what priority are the proved interests entitled to payment out from funds in court?
Summary of conclusions
For the detailed reasons which follow, I find that the plaintiff and her husband did execute the Acknowledgement of Trust on or about the date it bears. I find that they intended thereby to document what they both acknowledged to be the plaintiff’s existing half interest in the property. In other words, I find that the plaintiff did have a half interest in the property prior to the BKA Charge and the sale of Mr Milenkovic’s interest in the property to Legal Chicks at the Sheriff’s auction.
I find that the plaintiff and her husband also executed the Loan Agreement and Charge on or about the date it bears, 28 November 2005. However, I do not consider that they intended the loans subsequently made or the charge to be legally enforceable. I consider that the effect of the document was to record a personal, although not legally enforceable, arrangement or understanding as between them.
There is no dispute that Mr Milenkovic signed the BKA Charge on the day it bears. I find that the BKA Charge secured solicitors’ fees as well as disbursements, and that as at 31 March 2014 the amount so secured was $43,431.55.
I consider that the defendants have not shown that the plaintiff’s interest pursuant to the trust should be postponed to either of their interests. Accordingly, I will order that one half of the funds in court be paid to the plaintiff, and, of the remaining half, the amount now owed under the BKA Charge be paid to the first and second defendants and whatever remains to the third defendant.
Milenkovic Trust
The evidence in relation to the background to, and creation and intent of, this trust was given only by the plaintiff and Mr Milenkovic. Mr Milenkovic’s account is the more detailed. His account[5] is that the property was originally one of a number of investment properties owned by his parents. His parents were unable to keep up the mortgage payments and so he and his wife, the plaintiff, made payments towards two properties, a property at St Albans for a number of years until 1985 or 1986, and thereafter Stanley St. He says in his affidavit that his parents said that in return they would transfer the Stanley St property to him, and executed a written declaration of trust in his favour in about 1988 or 1989. That declaration of trust is not in evidence, and nor did Mr Milenkovic’s parents give evidence. Mr Milenkovic says that he obtained the transfer of the registered title to him from his parents in 1999 because he needed security to offer for a loan to purchase a truck when he went into business for himself as a builder.[6]
[5]In his affidavit sworn 25 February 2014, which is Exhibit F, at [4].
[6]Ibid, at [6].
Both Mr Milenkovic and the plaintiff say that they each contributed to the mortgage repayments on behalf of his parents. This was put forward as the justification for the plaintiff having a half interest in the property. They have no records to show what was contributed, nor that they each contributed. The reason Mr Milenkovic advanced in his affidavit as to why, if they both contributed, the property was not transferred to them both was that his parents had ‘old fashioned views about husbands and wives’.[7] He also gave this account in cross examination, adding that ‘I was their son and they were seeking to protect me. We were newly married.’[8] The plaintiff and Mr Milenkovic were tested on their assertions that they had each made contributions in cross examination, but adhered to their evidence on affidavit.
[7]Ibid, at [5].
[8]T 110.11-13.
Mr Milenkovic and the plaintiff also gave consistent accounts as to how the Acknowledgment of Trust came to be drawn and executed. They say that it was drawn up by a solicitor, Mr David Chapman, who at that time practised at Bentleigh in a firm. He drew the document on instructions from Mr Milenkovic, and they both attended and signed it in front of him on the date it bears, 2 June 1999. He witnessed their signatures.
The document is headed ‘Acknowledgement of Trust’ and the recitals acknowledge an existing trust in the property in favour of the plaintiff as to a one half interest as tenant in common, not as a joint tenant. The operative part of the Acknowledgement then provides for the survivor of each of them to take a life interest in the other’s half share, on that other’s death.
The plaintiff did not call any corroborative evidence in relation to the trust. She did not call her husband’s parents, or give any explanation why not, and did not call either Mr Chapman or Mr Lewenberg, the solicitor she consulted when she lodged her caveat on 19 January 2011. There was at one point an application by the plaintiff to adduce a statutory declaration said to be have been made by Mr Chapman, corroborating her account. That application was made on the basis that Mr Chapman was unavailable to give evidence. That application was withdrawn, and the affidavit of Mr Pryles, her solicitor, which set out the matters said to show the unavailability of Mr Chapman was not relied on.[9] The defendants accept, however, that Mr Chapman was overseas at the time of the trial, and so unavailable.[10] They do not seek that any adverse inference be drawn from his absence or the absence of Mr Lewenberg. The defendants do submit that there is no explanation afforded for the absence of Mr Milenkovic’s parents, who were clearly relevant witnesses.
[9]T 212.
[10]Defendants’ oral closing submissions
At the conclusion of the plaintiff’s cross examination, I drew to her attention that prior to the transfer of Stanley St to her husband, it was owned jointly by his parents.[11] On its face, this might seem inconsistent with her husband’s assertion that the reason that Stanley St was not transferred to them both was because of his parents’ ‘old fashioned views’. However, this possible inconsistency was not put to the plaintiff in the further cross examination following my questions, and so she did not have the opportunity to comment on it. It was put to Mr Milenkovic[12] in cross examination, and he adhered to his evidence. I will return to the explanation for transfer to him alone shortly.
[11]T 93.9 and Exhibit C.
[12]T 111
Contributions
While, as will be discussed in detail shortly, I have found that some of the evidence of the plaintiff and Mr Milenkovic is not reliable, I do accept their evidence that they each made financial contributions to the repayment of the mortgages on an investment property owned by Mr Milenkovic’s parents at St Albans, and later the mortgage on Stanley St, in return for which Mr Milenkovic’s parents transferred Stanley St to him. I do so for the following reasons.
First, it does not appear to be seriously contested that Mr Milenkovic made financial contributions towards his parents’ mortgages. The thrust of the defendants’ attack on the evidence about contributions was to suggest that the plaintiff had made no contribution.[13] Further, financial contribution by Mr Milenkovic is entirely consistent with transfer of the property to him by his parents.
[13]T 111.21-24.
Next, the plaintiff’s evidence is that she has worked either full time or part time throughout their marriage, other than for short periods (from one to four months) when their children were born.[14] That evidence is not disputed. Mr Milenkovic’s evidence is that they were married in January 1980[15], and have three children, who on his evidence would have been born in approximately 1982 (the oldest son, aged 32 in March 2014); 1987 (a daughter, turning 28 in 2014); and 1989 (another son, turning 26 in 2014).[16] This evidence was not disputed. It follows that the plaintiff was earning her own income and so able to contribute to household expenses and joint purposes from 1980, apart from short periods.
[14]Exhibit B at [4]; T 25.24-27.
[15]Exhibit F at [2].
[16]T 199.16-21.
Mr Milenkovic says that they started paying the whole of the mortgage on the St Albans property for a number of years from the ‘early 1980’s’ until 1985 or 1986, and then made contributions towards the mortgage payments on Stanley St.[17] The mortgage on Stanley St while it was owned by Mr Milenkovic’s parents was discharged on 4 April 1995.[18] I infer that contributions were being made to the Stanley St mortgage from 1985 or 1986 to 1995, being a period during which, on the undisputed evidence of the plaintiff, she had only two short periods not employed, when the two younger children were born. Indeed, for the whole of the period during which payments were being made towards the mortgages on the two investment properties, the plaintiff and Mr Milenkovic were married, and each was working, with the exception of three short periods.
[17]Exhibit F at [4].
[18]Exhibit C.
In addition to the financial capacity, through employment, to make contributions, I consider that the evidence shows that the plaintiff had the desire and drive to do so. The plaintiff commenced work as a hairdresser, but then studied accountancy part time, in addition to her family responsibilities and remaining part time work obligations. She obtained her accountancy qualification in 2000. I perceived her from the witness box as focused and determined, and a fairly forceful personality. Her study of accountancy and current employment as a financial manager, and readiness to draw up the Loan Agreement personally show an interest in financial matters. By contrast, Mr Milenkovic conceded that he was not good with paperwork, such as loan applications,[19] and ‘not a financial person’.[20] He signed financial documents without reading them,[21] or barely reading them.[22] He too studied to advance himself, beginning work as a train driver, and later qualifying as a builder, but said his interest lay in building, rather than making money.[23]
[19]T 114.19-20.
[20]T 136.16.
[21]T 128.11.
[22]T 137.9-10.
[23]T 109.3-7.
The defendants contend that the evidence that the plaintiff as well as Mr Milenkovic contributed to the mortgages should not be accepted because neither kept any records of their contributions, and neither can recall exactly what those contributions were. I do not consider this to undermine their evidence. The time period concerned was many years ago, the plaintiff and her husband were young (she was 18 in 1980)[24] and the plaintiff in particular gave a frank and convincing explanation for why she kept no records as follows:
That was quite a while ago, and when you help your family out, you know, I wasn’t that particular whether they paid me back or not because I knew that they would in some way pay me back.[25]
[24]T 48.8.
[25]T 28.8-11.
Mr Milenkovic also gave a convincing answer in cross examination to the effect that the plaintiff’s interest in Stanley St was not properly described as to one half in these words:
We paid that together, we were both kids. We were both on fairly low incomes and the little income we had, we spent our-our money on it.[26]
[26]T 115.28-30.
The defendants also contend that the evidence that the plaintiff contributed financially should not be accepted because the explanation given by Mr Milenkovic for the transfer to him alone, being that his parents ‘have old-fashioned views about husbands and wives’[27] was inconsistent with the fact that his parents owned Stanley St jointly prior to the transfer to him. There is certainly a possible inconsistency, but I consider that the second part of Mr Milenkovic’s explanation for the transfer to him solely, given in cross examination, is entirely plausible, at least in relation to the early years of the repayments. When asked about the statement in his affidavit to the effect that his parents had old fashioned views about husbands and wives he said:
That’s correct. They’re old fashioned. I was their son and they were seeking to protect me. We were newly married.[28]
[27]Exhibit F at [5].
[28]T 110.11-13.
The plaintiff and Mr Milenkovic were married in 1980, and so not newly married when Stanley St was transferred in 1999, but they were comparatively newly married when they first started making contributions to the mortgages in the early 1980s, and when the Milenkovic parents signed a declaration of trust in favour of Mr Milenkovic in 1988 or 1989. The transfer of the title to him solely ten years later is consistent with a declaration of trust to him alone. Counsel for the plaintiff submits that the reference to the parents being ‘old-fashioned’ is as equally capable of explaining transfer to a child, and not to the child and his or her spouse, as it is capable of preferring that property be held by the man only, and I accept that submission.
For these reasons, I consider that the plaintiff has shown a basis for her and her husband to consider that she had an equitable interest in Stanley St, arising from her direct financial contributions to it, and possibly also indirect contributions arising from the marriage. This analysis supports their evidence that this was their subjective intention. I now turn to the Acknowledgement of Trust which in terms records such an intention.
Execution of the Acknowledgement of Trust
The defendants contend that the evidence of the plaintiff and Mr Milenkovic as to the execution of the Acknowledgment should not be accepted. They contend that their evidence was vague, unconvincing and lacking in detail. The defendants rely on enquiries that suggest that there was no file record kept at the firm where Mr Chapman then worked of attendance by the Milenkovics. They also rely on the fact that the caveat that the plaintiff lodged after seeking legal advice in January 2011 does not refer to the Acknowledgement or the Loan Agreement and Charge. It relies only on a constructive trust.
There are certainly some unusual features about the creation and execution of this document, even on the plaintiff’s case. The plaintiff is unable to produce the original[29]; it seems that the solicitor whom they consulted has been convicted of some offences[30]; on the plaintiff’s case neither she nor her husband had or has dealt with him before or since as a solicitor, other than to contact him in 2012 to obtain confirmation of the Acknowledgement;[31] no file record of their attendance on him can be located at his former firm; no caveat was lodged at the time to give notice of the trust; and the Acknowledgement of Trust was not referred to in the caveat that the plaintiff did lodge in 2011.
[29]T 42.4- T 43.8.
[30]The defendants sought to tender a record of convictions of Mr Chapman in the County Court in 2013 in relation to the weight to be afforded to his representation made on the Acknowledgement of Trust that he had witnessed the signatures of the plaintiff and Mr Milenkovic on the date it bears in 1999. I refused the tender. T 305.10- T 311. 1.
[31]T 39.7-16.
Further, Mr Belleli gave evidence that he had acted for Mr Milenkovic and the plaintiff as a solicitor since the late 1980s on various matters.[32] The plaintiff confirms that this was so, although she said that he had acted for them on one or two conveyances only.[33] There is no explanation given by Mr Milenkovic as to why he did not consult Mr Belleli, rather than a solicitor he saw on one occasion only, in relation to acknowledging his wife’s interest in Stanley St. This was, after all, a dealing with land, and so not dissimilar in kind to the matters on which Mr Belleli had previously acted for them. However, this question was not put to him in cross examination, and so no inference can be drawn from this omission.
[32]Exhibit 7, at [5].
[33]Exhibit B at [32(a)].
It was put to both the plaintiff and Mr Milenkovic in cross examination that there was in fact no Acknowledgement of Trust.[34] In their oral closing submissions, the defendants clarified that they do not dispute that there is, or was, an original executed Acknowledgement of Trust, but do dispute that it was executed on the date the copy bears. This particular contention was not put squarely to the plaintiff or to Mr Milenkovic, nor was any suggestion as to when in fact it was executed, if not on the date it bears, put to them.[35] In my view, if the defendants’ case is that the document was executed on some later date, then that suggestion had to be squarely put to each of the plaintiff and Mr Milenkovic to give them an opportunity to respond to it. In the absence of that suggestion being put to them, I accept the plaintiff’s submission that the Court should be slow to reject evidence which is otherwise uncontested.
[34]T 49.24 and T 82; T 137.1.
[35]This was conceded to be the case by counsel for the defendants at T 310.18-23.
The defendants did not seek to impugn the standing of Mr Chapman as a solicitor in 1999, and accepted that he was unavailable to give evidence. The plaintiff and Mr Milenkovic say that they attended Mr Chapman’s office at Bentleigh to sign the Acknowledgement. The current principal of Mr Chapmans’ former firm, Kelly & Chapman, Mr Misko Vujnovic, swore an affidavit to the effect that he could find no record of the plaintiff or Mr Milenkovic as clients of the firm from June 1998 to the end of 1999, and that there is no record of the Acknowledgment at the firm.[36] His evidence does raise suspicion in relation to the evidence of the plaintiff and Mr Milenkovic. Mr Vujnovic was not available for cross examination, however, as he was ill in hospital, and so the weight that can be given to this affidavit is limited. It is not impossible, as the plaintiff submits, that the file, if one was created, was created in the name of Mr Milenkovic’s company, or that there is some other explanation for Mr Vujnovic’s inability to locate a record of an attendance that in fact took place.
[36]Affidavit sworn 28 February 2014, which became Exhibit 17.
The creation and execution of this Acknowledgement of Trust, as the plaintiff and Mr Milenkovic describe it, is also consistent with the execution of a declaration of trust in his favour by his parents in respect of Stanley St, prior to its transfer to him. He was not cross examined on his evidence that there was such a declaration, and so I accept it. That declaration was plainly not registered on the title of Stanley St, and so that past experience is consistent with the absence of immediate registration of a caveat disclosing the Acknowledgment of Trust.
For these reasons, despite the unusual features about the creation and execution of the Acknowledgement of Trust that I have identified, I find that it was created as the plaintiff and Mr Milenkovic say in evidence, and was executed on the date it bears. I will return to the question of the priority of the plaintiff’s half interest as tenant in common so created later in these reasons.
Was the Milenkovic Trust a sham?
The defendants contend that, if the Acknowledgement of Trust was executed as claimed, which I have found, then it was a sham transaction and of no effect. They rely on Sharrment Pty Ltd and ors v Official Trustee in Bankruptcy[37] (‘Sharrment’). In that case, the Official Trustee contended that the creation of a debt at the instance of a person who subsequently died and whose estate was in bankruptcy in favour of a family trust, utilising complicated transactions through related companies, was a sham. Lockhardt J, with whom Beaumont and Foster JJ substantially concurred, analysed the authorities. He held that on the basis of those authorities:
A “sham” is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false and deceptive.[38]
[37](1988) 18 FCR 449.
[38]Ibid, at 454.
Lockhardt J then discussed particular elements of “sham” transactions. The aspect on which the defendants rely here, and have adopted in their amended defence, relates to purported disposal of property. Lockhardt J held that :
A purported disposal of property, and by analogy a purported creation of a debt, may be a sham where donor and donee (or lender and debtor) do not intend to give effect to the transaction, it being agreed between them that there will be no change in the legal and beneficial ownership of the property.[39]
[39]Ibid, at 455.
In giving this example of a possible sham transaction, it is clear that Lockhardt J was not departing from the overriding test, that a ‘sham’ transaction is one which is intended to be a disguise, to purport to be something it is not. In other words, the test for a transaction to be a sham requires both a common intention among the participants, and a disjunction between the appearance and the reality of the transaction. This was the test that the trial judge applied, and the Full Court on appeal did not cavil with it, disagreeing only with its application to the facts.[40] Lockhardt J noted that the question that arises, if there is a contention that a transaction is a sham, is what is the real transaction, that the parties to the transaction sought to mask?[41]
[40]Ibid, at 452 and 454.
[41]Ibid, at 459.
In Sharrment, there was no commercial purpose to the transactions but the Full Court held that this was not necessarily an indicator that the transactions were a sham, because it was open to infer from the evidence that there was a ‘family purpose’, being in that case the intention of the deceased to benefit his family at his expense.[42] The Court also rejected the contention that an ulterior purpose, which in that case may have been to present a shield against creditors, is sufficient to characterise a transaction as a sham. Lockhardt J held that, absent the transactions being set aside under the relevant provisions of the Bankruptcy Act, they could be legally effective although intended to achieve an unacceptable purpose. [43]
[42]Ibid, at 460 (Lockhardt J) and 468 (Beaumont J).
[43]Ibid, at 455.
It is plain from Sharrment, that the hurdle a claimant faces in claiming that a transaction is a sham is a high one. Here, the defendants rely on matters both before and after the execution of the Acknowledgement of Trust in support of their submission that the trust was a sham. I have already discussed their submissions in relation to the events before the execution of the Acknowledgement. They submit that the plaintiff has failed to prove that she in fact made any contribution to the repayment of the mortgages on the investment properties when they were owned by Mr Milenkovic’s parents, which is to be inferred from the fact that Stanley St was transferred to him alone. As discussed earlier, I do not accept these submissions. I find that the plaintiff did make a financial contribution to the repayment of those mortgages, and so has shown a basis for the joint intention apparent on the face of the Acknowledgement of Trust.
It follows that the defendants must show that the plaintiff and Mr Milenkovic agreed, despite these contributions and their execution of the Acknowledgment of Trust, that Mr Milenkovic was to remain the sole legal and beneficial owner of Stanley St. In other words, that the real transaction was to effect no change to the legal and beneficial ownership of the property.
The plaintiff and Mr Milenkovic deny any such agreement. They expressly say it was their joint intention that the plaintiff had a half interest in Stanley St. It was put to them in cross examination that the trust was a sham, and they each denied it.
The strongest evidence in support of the defendants’ contention arises from matters subsequent to the execution of the Acknowledgement of Trust, being the absence of any indication to the outside world prior to the lodgement of her caveat in January 2011 that the plaintiff held not only that half interest, but any interest, in Stanley St. The defendants also rely on the absence of reference to a trust in the subsequent Loan Agreement. It is said that these matters show that the true intention of the plaintiff and Mr Milenkovic was that there be no change to his legal or beneficial ownership. I will now consider the subsequent dealings with the property in detail.
No prompt lodgement of a caveat
The first matter in time on which the defendants rely is that neither the plaintiff nor Mr Milenkovic caused a caveat to be lodged at the time of the Acknowledgement of Trust to protect her interest. This is certainly a step that one might expect a legal adviser, in this instance Mr Chapman, to suggest. Neither the plaintiff nor Mr Milenkovic recall any discussion of a caveat.[44] I do not consider the absence of a caveat at the time to necessarily indicate that the interest was not genuine. It is noteworthy, for example, that even the first and second defendants, themselves lawyers, did not register a caveat to protect their interest under the BKA Charge until February 2008 after it had become evident that Mr Milenkovic may not pay their costs. In other words, the solicitors did not take that step until they apprehended that their interest may need to be invoked, which is precisely the explanation that the plaintiff gives for not lodging a caveat until 2011.
[44]T 119.17-21 (Mr Milenkovic).
More telling in my view is that there is no clear evidence in the plaintiff’s case that either she or Mr Milenkovic caused any potential lender on the security of Stanley St to be made aware of her claimed interests in the property, and, where contemporaneous documents are in evidence exists, they support the defendants’ contention that her interests were not disclosed.
Loan from Liberty Funding
The first of these lenders was Liberty Funding Pty Ltd (‘Liberty Funding’) in 1999, from whom Mr Milenkovic borrowed in the order of $70,000 when he first went into business on his own account as a builder. The mortgage over Stanley St securing that loan was registered on 25 May 1999 i.e. approximately a week prior to the Acknowledgement of Trust, but the plaintiff said that her husband already recognised prior to the Acknowledgement of Trust that he held half the property for her, arising from her contributions. She agreed with the proposition put to her in cross examination that she was concerned that once her husband went into business on his own account, his assets may be at risk, but said that the purpose of the Acknowledgement of Trust was also to recognise her existing interest.[45]
[45]T 33.22-T 34.2.
Mr Milenkovic in his evidence agreed that there was a dual purpose to the Acknowledgement of Trust. He agreed with the proposition put to him in cross examination, which came from his own affidavit,[46] that there was a concern at the time he went into business in 1999 to protect the plaintiff’s interest in Stanley St, but volunteered that there was also concern to protect his interest as well. [47]
[46]Exhibit F at [7].
[47]T 114. 24-28.
It follows from their evidence, that both Mr Milenkovic and the plaintiff considered at the time he was negotiating with Liberty Funding that she already owned half of Stanley St. There is no evidence that either disclosed this to Liberty Funding. The plaintiff said it was a matter for her husband to answer[48] and all he could say is that he used a broker, and ‘I would have told the broker all my- all the information at hand’. He then qualified the statement in these words- ‘if I’ve told him at that time anything, I would have told him that half the property belongs to my wife’[49] (emphasis added). I do not consider that this vague and heavily qualified evidence proves that disclosure was made, and find that it was not.
[48]T 36.8-10.
[49]T 117.5-12.
Loan from the CBA
Mr Milenkovic subsequently refinanced the loan by obtaining an increased loan or line of credit in the sum of $280,000 from the Commonwealth Bank of Australia (‘CBA’). His evidence is that he again used a broker, and ‘would have told everything to the broker’.[50] When pressed as to whether he made a point of telling the broker about his wife’s half interest, he said ‘I wouldn’t have made the point about anything. I answered questions from the broker like I’m answering to you.’[51] The plaintiff’s evidence as to whether or not her half interest was disclosed to the CBA, is that she believed her husband had told the bank on the basis of what he told her at the time. She did not, however, recall that she asked him to do so. She said she could not recall because she did not have a problem with her husband borrowing that money.[52] No documents relating to the CBA loan are in evidence. I am not persuaded on the basis of this general and qualified oral evidence that the plaintiff’s claimed interests were disclosed.
[50]T 120.12-13.
[51]T 121.14-16.
[52]T 37.1- T 38.21.
Loan Agreement and Charge
The next dealing with Stanley St was the Loan Agreement and Charge, said to have been executed on 28 November 2005. I will discuss the execution and effect of the Loan Agreement in detail shortly. The defendants do not admit the execution of the Loan Agreement and contend that, if executed, it was not intended to create the relationship of lender and borrower. The defendants also rely on the formulation of the Loan Agreement, if executed, to dispute the trust. The Loan Agreement purports to secure the loan ‘over the Borrower’s (Milic’s) interest in the property at: 29 Stanley St’. The defendants say the absence of reference to the plaintiff’s claimed half interest in the property by way of trust suggests that there was no such trust.
In my view, if anything, the use of the phrase ‘the Borrower’s (Milic’s) interest’ in the property, rather than just a reference to the property itself might suggest that Mr Milenkovic had less than a full beneficial interest in the property, and so be entirely consistent with the claimed half interest held by the plaintiff. I do not, however, consider that any inference either way can properly be drawn, given that the Loan Agreement was not drawn by a solicitor.
Non disclosure to BKA
The plaintiff admits that her husband executed a charge over Stanley St, the BKA Charge, on or about 21 June 2006. I will discuss that charge in detail shortly. For current purposes, I foreshadow my finding that neither Mr Milenkovic nor his wife disclosed her claimed interests to BKA prior to the execution of the BKA Charge.
Refinance by Westpac
In April 2007 the loan over Stanley St was refinanced again by a loan from Westpac in the sum of $330,000. By that stage, in addition to the trust as to a one half interest, on the plaintiff’s case she was also a secured lender in respect of Mr Milenkovic’s remaining half share in Stanley St. Despite the extent of these claimed interests, and the plaintiff’s evidence that she believed her then claimed half interest was disclosed at the time of the earlier loan by the CBA, neither the plaintiff nor Mr Milenkovic can say if her interests were disclosed to Westpac. The plaintiff could not recall if she asked her husband to notify the bank, or if he told her that he had done so.[53] Mr Milenkovic’s evidence is again that he applied through a broker, told the broker, and can’t speak on behalf of the broker as to what he decided to put in.[54] This inability to recall such a significant matter would alone strongly suggest that no disclosure was made. The issue is put beyond doubt in my view by the contemporaneous documents in evidence relating to the loan. I find that neither the plaintiff’s claimed half interest by way of trust or her claimed secured interest arising from the Loan Agreement and Charge was disclosed to Westpac.
[53]T 47.15-17; T 53.28-T 54.1.
[54]T 137.1-8; T 138.10-22.
Exhibit 5 is a copy of a loan application by Mr Milenkovic to Westpac dated 8 March 2007. As noted, Mr Milenkovic said that he applied for the loan through a broker, and not all of the handwriting on the application is his. He acknowledged, however, that he had signed the application and that the list of real estate assets is in his handwriting. That list includes not just Stanley St, but also the matrimonial home at 14 Cabinda Drive, Keysborough (‘Cabinda Drive’). The address of Cabinda Drive is partly struck through, but the significance of this, if any, was not explored in the evidence. Each of the properties are given values, totalling $920,000. Nowhere in the application is the plaintiff’s half interest in Stanley St disclosed, and the only loan disclosed is the then current CBA loan and mortgage. Mr Milenkovic acknowledged that the section relating to secured loans is in his handwriting.
In my view, these omissions and the inclusion of Cabinda Drive are very significant. Even if Mr Milenkovic applied through a broker, he acknowledges not just signing the application, but completing these relevant portions himself. He did not disclose his wife’s half interest or the loan from her. I do not accept that it is significant, as counsel for the plaintiff suggests, that the form does not contain a space to identify properties held on trust. On his own evidence as to why the trust existed, Mr Milenkovic clearly understood the significance of it in relation to ownership. I consider that he would have appreciated that the instruction in the form ‘List all assets individually or jointly owned’ was not confined to bare legal title. If that is what he understood it to mean, he would not have listed Cabinda Drive, because the legal title in that property was transferred from him to his wife in 2004 for no consideration.
The amount Mr Milenkovic was seeking in this application was $348,500. The security he proposed was Stanley St, which he valued in the application form at $410,000. Plainly, if his wife owned half the beneficial interest in that property by virtue of a trust and had a secured interest over his remaining half interest, as they contend, the security offered would be less than the loan sought.
For reasons not explained, Mr Milenkovic made a further application to Westpac. Exhibit 4 is a later application to Westpac for finance, signed by Mr Milenkovic and dated 17 April 2007. The property assets listed are not separately identified, but the total value given is again $920,000, and so I infer that both Cabinda Drive and Stanley St are included. Again, the only secured loan disclosed is the then existing loan from the CBA.
The final relevant document in relation to the Westpac loan is the Memorandum of Common Provisions, which is exhibited to the affidavit by which the money was paid into court, in turn an exhibit to the first affidavit of the plaintiff. The Memorandum is of course incorporated in the mortgage. It contains an obligation in clause B 2 on Mr Milenkovic to inform Westpac in writing of any trust. I accept the submission of counsel for the plaintiff that this is a standard form document, unlikely to have been read prior to acceptance of the bank’s offer. Nevertheless, it reinforces that Mr Milenkovic was under a legal obligation to disclose any trust. I find on the basis of Exhibits 4 and 5, that he did not do so.
Having regard to the whole of the evidence in relation to disclosure of the trust to these lenders, I find that that neither the plaintiff nor Mr Milenkovic did disclose it (in the case of Mr Milenkovic) or ensure that it was disclosed (in the case of the plaintiff). I find that nor did they disclose to Westpac her claimed loan to her husband and her claimed interest as chargee after 2005.
Ares Global caveat
The plaintiff and her husband contend that there was one further potential lender, Ares Global Trading Pty Ltd (‘Ares Global’). Ares Global lodged a caveat on the title to Stanley St on 21 February 2008, claiming an interest as chargee dating from 11 October 2007. The date of lodgement of the caveat is significant. The VCAT proceedings concluded in judgment handed down on 13 February 2008.[55] Shortly thereafter, Mr Milenkovic disputed any obligation to pay further legal costs to BKA. The Ares Global caveat was removed in March 2011, on the application of the third defendant, which had by that stage acquired Mr Milenkovic’s interest in the property. It was put to the plaintiff and Mr Milenkovic that the caveat was lodged to defeat a claim by BKA on its charge, and that it was not supported by any genuine interest. They denied this, but did say that the transaction underlying the caveat had not proceeded.
[55]T 78.9.
I will discuss the Ares Global caveat in more detail in relation to the Loan Agreement and Charge, because the plaintiff and her husband say that he had sought a loan in an endeavour to repay her the money she had supplied him.
Significance of non-disclosure to lenders
The defendants submit that the failure of the plaintiff and her husband to ensure that her interests were disclosed to lenders shows that their true intention was not to create the interests by way of the Acknowledgement of Trust and Loan Agreement and Charge on which she now relies. The non-disclosure is a very significant consideration in the evaluation of their true intention. For the reasons that I now elaborate, however, I have concluded that in respect of the plaintiff’s claimed interest by way of trust, it does not outweigh the evidence that supports that interest. I reach a different conclusion in relation to the claimed interest by way of loan. In summary, I reach this conclusion in relation to the claimed interest by way of trust because the evidence shows that the plaintiff and her husband treated their real property as mutually owned, irrespective of legal title. I also consider that there is a likely motive for the non-disclosure which is consistent with the existence of the trust, that motive being to preserve the attractiveness of Stanley St as sufficient security for business loans, while the parties anticipated no real threat to it. I now elaborate these matters.
In relation to the way the plaintiff and her husband treated their real estate, the inclusion of both properties in the loan applications to Westpac shows that Mr Milenkovic considered that he had a financial interest in each, and either the express or tacit approval of his wife to put both forward in support of his application for a loan to be secured over Stanley St. Cabinda Drive was legally owned at that time by the plaintiff, and only Stanley St by Mr Milenkovic.
The third property in which both the plaintiff and her husband held an interest of some sort was a property at Warburton, owned by a family trust. On the plaintiff’s evidence, she, her husband and their children are the beneficiaries of that trust. Mr Milenkovic did not include this property in his list of assets when seeking his loan from Westpac, but he did claim a financial interest in it, as well as in Stanley St and Cabinda Drive, in the proceedings in VCAT in 2006 in which the first and second defendants acted for him and for which they sought the BKA Charge.
The intent of Mr Milenkovic’s evidence in those proceedings, and that of the plaintiff, was to assert that as at 2004 he had the financial capacity to complete the contract the subject of the proceeding. In his Supplementary Statement of Evidence dated 16 October 2006, he asserted that as that date and in 2004, he held a financial interest in the three properties, Stanley St, Cabinda Drive and Warburton. He attached title searches which showed that he was the registered proprietor of Stanley St only.[56] He gave this evidence in re-examination at VCAT[57], and his counsel relied on it in his reply submissions.[58]
[56]Exhibit DAR-5 to the affidavit of David Arthur Rewell sworn 12 December 2013, Exhibit 16, at [11].
[57]Exhibit DAR-6 at transcript page 918.
[58]Exhibit DAR-8 at [231].
The plaintiff also gave evidence about her husband’s assets. In cross examination she was asked ‘Do you know what properties he owned?’ to which she answered that ‘He had our family trust property… He has a property in Brunswick and our home’. In answer to the question whether the family home was in her name, his name or joint names, she answered ‘I think it was in my name’.[59] In this trial, when asked why she did not disclose the trust to VCAT, the plaintiff said that she was not asked directly how much of an interest her husband had in ‘this property or that property’, noting that she said he had an interest in Cabinda Drive, although it was in her name.[60] I consider that the plaintiff’s evidence at VCAT shows that she agreed with the approach taken by Mr Milenkovic in relation to non-disclosure of the trust to the outside world.
[59]Exhibit DAR-7 at transcript page 203.
[60]T 74.13-15, T 75.9-14..
It was put to the plaintiff and Mr Milenkovic in cross examination in this trial that finance secured over Stanley St only would have been harder to obtain had the plaintiff’s interests in that property been disclosed. That is plainly so. The suggestion was put to them in connection with the defendants’ case that there was in fact no such interest. It also supplies, however, in my view a probable motive for the non-disclosure, if the interests did in fact exist. For his business Mr Milenkovic needed credit and working capital. An institutional lender would ordinarily require security over real estate for any substantial loan. The necessity for security to offer a lender was the explicit reason for the transfer of the legal title to Stanley St to Mr Milenkovic from his parents in 1999, given that he already owned the beneficial interest in the property by way of their declaration of trust.
The other potential security property (leaving aside the trust property) was the matrimonial home at 14 Cabinda Drive. 14 Cabinda Drive was originally purchased as vacant land together with the adjacent lot in Mr Milenkovic’s name only. He built houses on both lots, and sold 16 Cabinda Drive, on the plaintiff’s evidence during the 1990s. The matrimonial home at 14 Cabinda Drive was transferred to the plaintiff for no consideration in October 2004. The plaintiff said that although she paid no money for the transfer, it came about because her husband had already used the property next door ‘for his own purposes’.[61] This was, on her evidence, some years before, so the timing of the transfer to her may suggest that it was with a view to keeping the matrimonial home away from creditors. The transfer was in 2004, and in 2004 Mr Milenkovic set up a joint venture company in addition to his own business.[62]
[61]T 93-94; 96.
[62]Exhibit F at [10].
As a result of this transfer, after 2004 between them Mr Milenkovic and the plaintiff had two properties in their personal names, one registered in the name of each. They also had an indirect financial interest in the family trust property. The only occasion on which that interest was disclosed, on the evidence, was to bolster Mr Milenkovic’s claim that he would have been in a position to proceed with the contract the subject of the VCAT proceeding. Relying on it in this way did not, of course, expose it to any risk.
I conclude that non-disclosure of the plaintiff’s claimed interests in Stanley St to the outside world was entirely consistent with a joint intention to facilitate Mr Milenkovic’s business, while protecting their matrimonial home and family trust property in the event the business did not prosper.
In my view, the explanations given by the plaintiff when asked in cross examination why she did not cause a caveat to be lodged at the time of execution of the Acknowledgement of Trust or ensure that her interest in Stanley St was disclosed to Westpac support my conclusion that this was their probable motive for the non-disclosure. The plaintiff said she was not aware that she needed to lodge a caveat to protect her interest in relation to ‘the trust document’ because ‘I didn’t feel that there was any threat at that stage (by implication, on execution of the Acknowledgement of Trust) for me to lodge the caveat’. She expanded her answer in these words: ‘At that stage I didn’t really understand that I could lodge a caveat, but if I thought that my property was threatened I would have had legal advice and see what I can do about it. I thought I was protected by the mere fact that I had the document’.[63]
[63]T 26.31-T 27.12. See also T 74.25-27 to the same effect.
She gave a similar answer in relation to questions as to whether she asked her husband if he had disclosed her interests in Stanley St (by then in relation to both the trust and the loan agreement) to Westpac. She answered: ‘No, I didn’t have a problem with him borrowing that money’.[64] In other words, she considered it safe not to disclose her claimed interests while the property was not at risk from any external source. She only took steps to disclose her interest (and only one such interest) once she became aware that the property was at risk.
[64]T 54.19.
Having regard to the whole of the evidence discussed above, I find that the plaintiff and her husband did not disclose any claimed interest by the plaintiff in Stanley St to the outside world, until the plaintiff lodged her caveat in January 2011. At that time, the Sheriff’s auction was imminent and so there was clearly a real risk to the plaintiff’s interests. I find that their probable motive was to facilitate obtaining business loans secured over Stanley St only, and so keeping their other assets secure. This might suggest an ulterior purpose for the execution of the Acknowledgement, being as in Sharrment, to ‘present a shield against creditors’, to be concealed when it would not facilitate the business, but to be used when necessary. Even if that were a motive, however, that does not, as Sharrment makes clear, defeat the creation of the trust, if the evidence shows an intention to create it.
In my view, the evidence here does show such an intention. I accept the evidence of the plaintiff and Mr Milenkovic that it was their intention at the time of their contributions to the repayment of the mortgage on Stanley St prior to its transfer and at the time of its transfer to Mr Milenkovic alone that the plaintiff hold a half interest in Stanley St, based on the objective foundation of the plaintiff’s financial contributions. Further, as also exposed by Sharrment, the lack of a commercial purpose does not render a transaction a sham, if there is a family purpose that can be inferred. Here the family purpose that can be inferred is to protect the couple’s assets to the extent possible, while allowing the business to operate.
Sheriff’s auction
Two further occasions on which the plaintiff had the direct opportunity to disclose her equitable interest or interests in Stanley St arose on the evidence. On both of these occasions the property, and any interest she had in it, was clearly at risk. The first was when she learnt of the impending Sheriff auction in January 2011 and consulted a solicitor, Mr Lewenberg, and the second when Westpac indicated that it intended to exercise its powers as a mortgagee on default in July of that year.
The plaintiff did take action to declare an interest in Stanley St in relation to the Sheriff’s auction. Following obtaining advice from Mr Lewenberg, she personally completed and lodged a caveat over Stanley St. The caveat does not, however, refer to either the Acknowledgement of Trust or to the Loan Agreement and Charge. It claims an equitable interest pursuant to a constructive trust.
The plaintiff’s explanation in cross examination for this omission is that she told Mr Lewenberg of these documents, but as she had not been able to locate them in the little time she had to act after learning of the imminent auction, he advised her to lodge the caveat in the form she did.[65]
[65]T 81.26-29.
The plaintiff’s evidence as to what she was told by Mr Lewenberg is not corroborated by any other evidence. In my view, her explanation for the form of the caveat is possible, but not very plausible. First, the trust is described as a ‘constructive trust’, not an express trust. A lawyer told that there was a document acknowledging the trust would be expected to appreciate the difference. Secondly, the caveat refers only to a trust, it does not refer to the further interest that on the plaintiff’s case had been created by that time, being the charge under the Loan Agreement. The absence of the documents in the conference with Mr Lewenberg meant that he could not satisfy himself of their contents, and so arguably could not, consistently with his ethical obligations, lodge a caveat in reliance on them as a solicitor. He did not lodge the caveat, however, the plaintiff did herself. If, as she claims, she was personally familiar with the contents of the documents, and believed that they created legally enforceable interests in the property, imminent possible sale of the property would seem to be the occasion to disclose them.
As I have found for other reasons that a trust existed, on balance I do not consider the failure to disclose the Acknowledgement of Trust at this time to be fatal to that interest. It is, however, in my view, a significant omission in relation to the Loan Agreement, and so the Charge. I will return to that shortly.
Exercise of power of sale by Westpac
The other occasion on which the plaintiff herself was in a position to directly disclose her claimed interests in Stanley St to a creditor who posed a threat to the property was in relation to Westpac when it exercised its power of sale. The exact reasons for Westpac to take this step then are not in evidence. It appears, however, that at some point prior to 27 June 2011 there was a default, or further default (given that BKA was notified of a default in 2009) and perhaps some negotiation directly with Mr Milenkovic about repayment of arrears.[66] Mr Milenkovic was going overseas, and for that reason gave the plaintiff his power of attorney. He signed an application to the Financial Ombudsman Service (‘FOS’) on 19 July 2011, which the plaintiff completed.[67] That was a direct opportunity for the plaintiff to disclose her claimed interests in the property. She did not do so in that application. She had by that time lodged a caveat on the title claiming an interest by way of constructive trust, but the only loan noted in the application as either secured over Stanley St (as she claims hers was) or unsecured is the loan to Westpac. At that time, on the plaintiff’s calculations pursuant to the loan agreement, her husband owed her $253,471[68].
[66]A letter of 27 June 2011 from Westpac to Mr Milenkovic is referred to in Exhibit 2.
[67]Exhibit 1. T 86.13-26.
[68]T 87.23-31.
The plaintiff did not in the completed application to FOS include the interest held by Mr Milenkovic in Cabinda Drive that she had agreed at VCAT existed. Westpac would, however, have been aware from the earlier applications of his claimed interest in Cabinda Drive as well as Stanley St.
Further correspondence directly between the plaintiff and Westpac ensued. It appears that the plaintiff had written directly to Westpac on 25 July 2011. That letter is not in evidence. The response from Westpac dated 29 July 2011 is in evidence.[69] It makes no reference to any claimed interest held by the plaintiff. Nor does her reply dated 3 August 2011.[70] That reply speaks in strong terms of the bank’s duty to Mr Milenkovic, but makes no mention of any claimed interest by the plaintiff herself in the property.
[69]Exhibit 2.
[70]Exhibit 3.
The plaintiff said she could not recall why she did not mention the loan in the application to the FOS. [71] She said she assumed that the trust was not mentioned because Stanley St was in her husband’s name.[72] Similarly, she said she could not recall why she did not refer to her claimed interests in her letter of 3 August 2011 to Westpac. I do not accept these explanations. I consider them evasive, and disingenuous. At this stage the plaintiff had been a qualified accountant for over 10 years, having qualified in 2000.[73] She had been working as a finance manager since 2008.[74] The content of her reply letter to Westpac shows an ability to advocate. She impressed me from the witness box as a forceful personality. She gave detailed evidence on matters that favoured her case, even when they occurred many years before. I find that the absence of reference by her to the loan or the trust in this correspondence to Westpac was deliberate.
[71]T 88.9-15.
[72]T 89.1-5.
[73]T 25.6-8.
[74]T 50.20-21.
There is a possible explanation for the omission that is consistent with her claims in respect of those interests. That is that disclosure of those interests to Westpac when mortgagee sale was threatened would not have advanced her request that the bank allow time to Mr Milenkovic to repay the arrears. This explanation was not put to the plaintiff, and so I make no finding that this was her motive for concealment. I merely note that there is a possible alternative inference for concealment, which is consistent with the transactions in question not being shams. Pursuant to Sharrment, that may be sufficient to discount that characterisation.[75]
[75](1988) 18 FCR 449, at 459.
Conclusion
I have given careful thought to whether these two occasions, on which the plaintiff did not disclose the interests she now claims in Stanley St notwithstanding that those interests were clearly then at threat, should cause me to reconsider the conclusion I would otherwise have reached in relation to the existence of the trust. I will return to the relevance of these matters in relation to the loan in due course.
On balance, I consider that the inference that is open from these omissions, that the trust was a sham, is outweighed by the other evidence that I have accepted. I accept the evidence that there was a foundation for the trust by reason of the plaintiff’s contributions to the earlier repayment of the mortgage when the property was owned by Mr Milenkovic’s parents. I have also found that despite the unusual aspects of the creation of the Acknowledgement of Trust, the evidence of the plaintiff and Mr Milenkovic that it was created and executed on the date it bears should be accepted. That document explicitly states a joint intention that Mr Milenkovic hold one half of Stanley St on trust for the plaintiff. Their evidence is that this was also their subjective intention. I do not consider that non-disclosure to the outside world casts such doubt in relation to this stated intention that I should not accept their evidence of it. There is a plausible explanation for that non-disclosure in the desire to obtain credit while protecting their assets, while the business was ongoing. Once the property was at threat, the plaintiff did take steps to alert a possible purchaser to her interest by way of a trust. For these reasons, I do not accept the submission of the defendants that the trust was a sham.
I will consider non-disclosure of the trust further in relation to the question of priority in respect of competing interests later in time.
Loan Agreement and Charge
The evidence of the plaintiff and Mr Milenkovic is that they signed the document headed ‘Loan Agreement’ a copy of which is exhibited to the plaintiff’s first affidavit[76] and did so on the date it bears, 28 November 2005, before a witness Sandra Stankovska. Their evidence is supported by Ms Stankovska, who gave clear and convincing evidence to the same effect. The defendants do not admit that the document was executed as claimed, but make no submission that Ms Stankovska should not be believed. I find that the Loan Agreement was executed by the plaintiff and Mr Milenkovic on the day and in the form claimed.
[76]Exhibit JM-4 to the plaintiff’s affidavit sworn 26 June 2013, which became Exhibit A in this trial.
The Loan Agreement defines the plaintiff as ‘the Lender’ and her husband Milic Milenkovic as ‘The Borrower’. It purports to record that the plaintiff will lend her husband ‘up to $150,000’ ‘in instalments as and when requested’. It specifies that interest is payable at 8.75%, payable monthly and to be capitalised if not paid when due. It provides in relation to a heading ‘Security’ as follows:
(i) Inter alia a charge and equitable mortgage over the Borrower’s (Milic’s) interest in the property at: 29 Stanley Street Brunswick: “Certificate of Title Volume 4300 Folio 813”
The Loan Agreement also specifies certain other conditions and that variations need to be agreed in writing. It does not, however, contain any date for repayment of principal and capitalised interest, nor any express obligation to repay.
The plaintiff says that she created this document herself, after doing some research on the internet.[77] She says that her husband asked her for a loan to assist in repayment of expenses associated with the VCAT proceeding and working capital and that she wished to formalise the arrangement because, in her words, ‘I had previously lent him money which wasn’t- we didn’t have any agreement and I said I wouldn’t lend him any more money without having some sort of security for myself’.[78]
[77]T 51.13-14.
[78]T 51.22-25.
The plaintiff deposes in her second affidavit[79] to the steps she took following execution of the Loan Agreement. She obtained further funds from the CBA secured by the mortgage over Cabinda Drive, which was in her name, and provided certain amounts to her husband. Those amounts consisted of two large payments of $82,000, made on 13 February 2006, and $72,000 made on 13 February 2007, together with some smaller sums. The last amount provided was on 31 January 2008. The plaintiff exhibits to her second affidavit various bank records to prove the extension to the mortgage and those payments. She was not cross examined on these matters. I find that the amounts were transferred as she deposes, from accounts in her name to an account in the name of Unique Investments (Vic) Pty Ltd, which was the company used by Mr Milenkovic for his business, or directly to counsel and witnesses engaged in the VCAT proceeding.
[79]Exhibit B.
The plaintiff deposed in her first affidavit that she has not been repaid any part of those sums. It was not suggested to her in cross examination that she had, and so I accept her evidence in chief that she has not. She exhibits to that affidavit[80] a calculation of the amount owing to her by her husband under the Loan Agreement, which was, according to that calculation, as at 1 September 2012, in the sum of $280,754.28. The fact that this document runs to 1 September 2012 suggests that it was created, or at least completed, on or after that date. There is no evidence, either in chief or in cross examination, as to when it was created, or for what purpose.
[80]Exhibit A.
In Heid, there was content to the conduct that resulted in postponement - handing over a completed transfer and the certificate of title. Those documents then directly enabled the purchaser to borrow on the security of the land and so create the subsequent interests. No such positive conduct by the plaintiff has been identified by the defendants in this case. The conduct that is relied upon by the defendants is conduct by omission.
Viewing her conduct at its mildest, by omitting to lodge a caveat prior to January 2011 or otherwise ensure that Mr Milenkovic disclosed her interests to potential lenders, the plaintiff was merely passive- she did not prevent Mr Milenkovic from representing himself as the sole owner. At its highest, her omission to lodge a caveat or otherwise ensure disclosure of her interests was a deliberate decision so as not to impair the capacity of Mr Milenkovic to borrow on the security of Stanley St. The plaintiff resisted this latter interpretation when it was put to her in cross examination. She said that, while she could now see the force of the proposition that disclosure of her interests would have made Mr Milenkovic a less attractive candidate for finance, she did not think about it in that way at the time of the earlier lending.[177] She then qualified her answer by noting that there would have been no difficulty if she agreed with the loan.[178]
[177]T 35.5-11.
[178]T 36.2-4.
In Platt Nominees the Full Court considered that a finding that the holder of an equitable interest deliberately omitted to lodge a caveat to advantage herself, there against a subsequent purchaser, would be an ‘extremely adverse finding’ where the balancing of equities and issues of conduct are involved.[179] It is necessary then to reach a view as to the nature of the plaintiff’s conduct in this regard.
[179][1990] VR 146 at 156.
As discussed earlier, I consider it is probable that both she and Mr Milenkovic arranged their interests in property so as to protect their matrimonial home while preserving the capacity of Mr Milenkovic to borrow against Stanley St.[180] The plaintiff’s equivocation in cross examination supports this inference. I do not think, however, that there is any evidence that she omitted to ensure disclosure as far as BKA was concerned to advantage her interests as against theirs.
[180]This is similar to the submission made by the defendants- Defendants’ (Closing) Submissions at [40.a.v].
There is a crucial distinction in my view between the earlier lending for business purposes and the solicitors’ fees that the BKA Charge secured. It was apparent from the plaintiff’s evidence that she was aware of the earlier lending by Liberty Finance, the CBA and later Westpac, and, by inference, prior to the security being given for those loans. Further, she agreed to those loans. By contrast, there is no evidence that she was aware that Mr Milenkovic had agreed to give the BKA Charge, or that she was aware of it at all prior to 2011, when lodgement of her own caveat would have brought it to her attention. Her evidence is that she was not,[181] and there is nothing to the contrary. Further, her evidence in relation to the alleged disclosure of her interests to Mr Belleli in June 2006 was to the effect that if the VCAT proceeding could only continue if the charge was to be given, then Mr Milenkovic should ‘pull out of the whole deal and take his losses’[182]. I do not accept that this meeting took place, but I do accept that she would not have agreed to the giving of the security.
[181]Exhibit B, [31(8)].
[182]T 64.11-12.
Further, I do not consider that it is proved that the plaintiff contemplated, or should reasonably have contemplated, that Mr Milenkovic might give the BKA Charge over her objections. The defendants did not put this to the plaintiff in cross examination, and did not elaborate their submission as one of negligence.
Thus, the plaintiff’s knowing acquiescence to her husband putting Stanley St forward for security to lenders on the basis that he was the only owner may have been relevant in a priorities dispute with such a lender. I do not, however, consider it shown that there was any such knowing acquiescence in relation to the BKA Charge.
It follows from this analysis that the only conduct by which the plaintiff can be said to have allowed Mr Milenkovic to misrepresent the position to BKA is by not lodging a caveat. The second and third matters relied upon by the defendants, on analysis, are the same as the first. I do not consider that the defendants have shown that that omission, even if deliberate to facilitate business borrowing, is sufficient to justify postponement of her interest by way of trust to an interest acquired that was not conventional business borrowing, being the BKA Charge.
The final matter relied upon by the defendants to justify postponement of the plaintiff’s prior interest is their submission that she was untruthful in her evidence about the June 2006 meeting. I accept that she was untruthful. Her evidence appeared considered and was maintained under cross-examination. She said she had no doubt about it, and did not seek to qualify it when the inconsistency with her reply was pointed out to her.[183] The plaintiff on her own evidence has excluded the possibility of mere faulty recollection. The defendants say that the plaintiff’s false evidence should lead to postponement of her interest, because it ‘goes the very heart of the question to be considered by the Court on a priorities dispute in determining the parties’ rights, namely the question of notice of the prior interests claimed.’[184] They rely on the detailed discussion of the relevance of ‘unclean hands’ in Black Uhlans Incorporated v New South Wales Crime Commission and ors[185](‘Black Uhlans’) by Campbell J of the New South Wales Supreme Court in support of that submission, and in particular one of the cases there discussed, Armstrong v Sheppard & Short Ltd[186].
[183]T 60.30-31 and T 61-64.13.
[184]Defendants (Closing) Submissions at [40.d].
[185][2002] NSWSC 1060.
[186][1959] 2 QB 384.
In Black Uhlans, Campbell J, after an exhaustive analysis of the authorities, concluded that the operation of the maxim, that a person who seeks equitable relief must have clean hands, may be triggered by an act of wrongful conduct by that person, but not by any such act, regardless of its nature or connection to the subject matter of the suit.[187] He traced the origin of the maxim, and identified an early statement of its requirements in Dering v Earl of Winchelsea[188]. In that case, it was held that the wrongful act must have ‘an immediate and necessary relation to the equity sued for’ and must be ‘a depravity in a legal as well as in a moral sense’. These requirements remain the necessary condition for the deprivation of equitable relief that would otherwise be afforded to the person who has engaged in the wrongful conduct both in Australia, and in the United Kingdom, as the cases discussed by Campbell J show. In Meyers v Casey[189] Isaacs J (with whom Rich J agreed) distinguished the case of a party who seeks to assert a right brought into existence by his own wrongful conduct, and the case of a party who has engaged in wrongful conduct but the right that he seeks to assert exists independently of that wrongful conduct.[190] The case before the Court was held to fall within the latter category, and the relief sought was granted.
[187]Black Uhlans, at [161].
[188](1787) 1 Cox 318; 29 ER 1184.
[189](1913) 17 CLR 90.
[190]Meyers v Casey, at 123-124, cited in Black Uhlans at [170].
In Armstrong v Sheppard & Short Ltd, which is particularly relied upon by the defendants, equitable relief by way of injunction was refused to a landowner who had orally agreed to a trespass on his land, by way of construction of a sewer, although without knowing that it was in fact his land. At trial, he denied that he had so agreed, but was found to have done so. The Court relied on the fact that he had misled the Court in refusing the relief. The defendants rely on this case as authority for their proposition that relief should be refused to the plaintiff here because of her untruthfulness about disclosure to them.
Misleading the Court is a serious matter. I do not, however, consider that the plaintiff’s untruthfulness in relation to disclosure justifies postponement of her interest to that of the first and second defendants. I reach that conclusion for the following reasons.
First, I consider that the defendants overstate in their submission the significance of notice by the plaintiff. The plaintiff as the holder of the interest first in time was not required to give notice of it to any person. Proof of notice to holders of subsequent interests is not essential to the maintenance of her prior interest. Priority in time is alone sufficient, in the absence of conduct justifying postponement.
The consequence of her evidence not being accepted is that she has not proved that she gave notice of her interests prior to the BKA Charge. Proof of notice would undoubtedly have put an end to any priorities dispute, and the failure to give notice, if notice could have been expected, would be a relevant circumstance in support of postponement. As discussed, however, I do not consider that the defendants have shown that the plaintiff could reasonably have been expected to give them notice of her interests. She wasn’t asked about any interest she had, and she wasn’t aware that Mr Milenkovic had agreed to give the BKA Charge. Accordingly, I do not consider that the essential requirement, that the wrongful conduct bear a ‘necessary’ relation to the relief that she seeks, is made out.
Secondly, the plaintiff’s untruthfulness at trial about giving notice in 2006 to Mr Belleli of her interest played no role in the creation of the later and competing equitable interest pursuant to the BKA Charge. I have found she did not give notice, and reached that conclusion in part because I accepted that, had she done so, Mr Belleli would have taken steps in addition to seeking only Mr Milenkovic’s consent to the BKA Charge. It follows that I do not consider that her untruthfulness now, about an inessential element to her claim, has the necessary ‘immediate relation’ to her claim pursuant to the trust, to justify postponing that claim to claims later in time.
The absence of these essential requirements is sufficient to dispose of the issue. In case I am incorrect in this analysis, and because misleading the Court was specifically relied upon in Armstrong v Sheppard & Short Ltd, I have, however, also considered other discretionary factors.
Campbell J noted in his extensive discussion of the authorities, that while the requirements identified n Dering v Earl of Winchelsea remain the necessary condition for the application of the ‘unclean hands’ maxim, they are not a sufficient condition. Other discretionary factors may come into play. In other words, there have been cases where despite the satisfaction of the baseline conditions for refusal of relief on the grounds of unclean hands, the equitable relief sought was still granted. Campbell J’s analysis shows that one of the circumstances that may justify relief, even if the baseline conditions for refusing it are made out, has been the nature of the relief sought, and the availability of other relief.[191] In Armstrong v Sheppard & Short Ltd for example, the landowner was refused the relief of an injunction, but was successful (to a limited degree) in obtaining damages for trespass. His success was limited because he had suffered no loss, and this was a further reason for refusal of the injunctive relief.
[191]See his discussion at [182].
Here, the relief that the plaintiff seeks is to obtain is enforcement of a prior equitable interest by way of first payment out from the residue in court. The defendants rely on her untruthfulness and so ‘unclean hands’ as a reason for postponing her interest not just to that of BKA, but also to Legal Chicks. There is no basis for distinguishing between the first and second, and the third, defendants in relation to this wrongful conduct because Mr Belleli was the guiding mind of the third defendant in relation to the Sheriff’s auction. If her interest by way of trust were postponed to both the interests claimed by the defendants, then she would be denied any payment, notwithstanding what I have found to be financial contribution to Stanley St prior to the transfer to her husband. She does not seek any other form of relief. Having regard to this discretionary factor, I would not postpone her claim by reason of her untruthfulness at Court alone.
Conclusion
By this analysis I have sought to show that there are in truth only two matters on which the first and second defendants can rely to justify postponement of the plaintiff’s interest by way of trust to theirs by way of the BKA Charge: her failure to lodge a caveat; and her untruthfulness as to whether she gave notice to Mr Belleli of her claimed interests. I have considered them separately, and concluded that neither alone justifies postponement. Nor do I think they do so viewed together. This is because it is only the failure to lodge a caveat, i.e. the first matter, that played any role in relation to the creation of the BKA Charge. As Mr Rewell searched the title for the preparation of the BKA Charge, if a caveat had been lodged, the first and second defendants would have been on notice of a claimed interest, and the BKA Charge may not have proceeded. The plaintiff was not untruthful as to any interest she had in the property at the time- she was not asked about any interest, and, I have found, was not present when the BKA Charge was requested. Heid and Platt Nominees show the emphasis must be on the conduct of the holder of the first interest particularly as it related to the creation of the second interest. The plaintiff’s untruthfulness now played no role in relation to the creation of the BKA Charge.
It follows that I do not consider that the plaintiff’s interest by way of trust should be postponed to that of the first and second defendants by way of the BKA Charge.
Postponement of the Milenkovic Trust to the interest acquired by Legal Chicks
The plaintiff submits that Rowe shows that postponement of the earlier interest is not possible, given the risks that a purchaser at sheriff’s auction takes.
The defendants submit that there is no prior authority on the specific question as to whether an equitable interest created earlier in time to purchase of the registered proprietor’s interest at a sheriff’s auction can be postponed to the interest so acquired by the purchaser. They contend that none of Rowe, Bruce v Woods and Pirpiris unambiguously hold that the prior equity cannot be postponed on the usual priority dispute principles.[192]
[192]Defendants (Closing) Submissions at [34].
In my view, the defendants are correct in their submission. None of the authorities to which the parties have taken me in relation to the interest acquired at a sheriff’s auction determine that a prior equitable interest cannot, as a matter of law, be postponed to the interest acquired by the purchaser. No priorities issue was raised in Rowe (it was unsuccessfully argued by the purchaser that the earlier interest had not in fact been created, or, if it had, was void as a fraud on creditors); in Bruce v Woods both the plaintiff and the sheriff had actual knowledge of the earlier equitable interest prior the sheriff’s sale[193] (and so there could be no priority dispute, and none was argued) and in Pirpiris the Court found that the claimed prior equitable interest did not exist.[194] McInerney J in Pirpiris made the comment that, had he found that the claimed interest by way of declaration of trust had been created, the purchaser’s interest would have been postponed to that of the beneficiary of the trust,[195] but the comment was, on his findings, obiter, and in any event not determinative on the priority issue as the trust, if found, was the interest first in time.
[193][1951] VLR 49 at 51.
[194][1975] VR 129 at 132.
[195]Ibid, at 137.
The defendants submit that not only can a prior interest be postponed to that of the purchaser at the auction, but here it should be. They accept that the plaintiff lodged a caveat claiming an interest by way of trust on the day prior to the auction, but submit that that should not improve her priority. They rely on the fact that the Sheriff gave notice of interests disclosed to her prior to the auction, and this disclosure did not include any interest claimed by the plaintiff. Further, they say that Mr Belleli had conducted a title search, although not immediately prior to the auction, and his dealings with the plaintiff and Mr Milenkovic had ‘raised no reasonable expectation that (the plaintiff) would or could claim an interest in the property’. They rely on the fact that Legal Chicks paid $23,000 without notice of the plaintiff’s interests, which is described as ‘detrimental reliance on an assumed state of affairs’. The final factor upon which they rely is the plaintiff’s untruthfulness about prior notice.[196]
[196]Defendants (Closing) Submissions at [41].
In my view these factors do not justify postponement of the plaintiff’s interest, even if that is legally possible. The defendants in their submissions have not started from the correct point- that as first in time, the plaintiff’s interest will have first claim, unless there is reason to postpone it. It is not a question of lodgement of her caveat ‘improving’ her equity- as first in time, it did not need improvement. The relevant issue is whether she did anything to justify postponement, or there is other reason for postponement. The plaintiff made no representation to Mr Belleli or Legal Chicks that she had no interest, and so there can be no estoppel or relevant ‘detrimental reliance’. Mr Belleli and Legal Chicks relied on his earlier searches of the title and what the Sheriff said, not on what the plaintiff had said or done.
Certainly, the plaintiff’s claim in her oral evidence[197] that she told the Sheriff of her claimed interests sits oddly with the fact that the Sheriff did not disclose any such interest at the auction. This discrepancy was not explored in the evidence, however, and there may be innocent explanation.
[197]T 82.3.
The defendants say that their prior dealings with the plaintiff and Mr Milenkovic had not raised any ‘reasonable expectation’ that she might have an interest in the property. Even if a fair summary of those dealings, it is not a reason to postpone the plaintiff’s interest that the defendants (second in time) were not negligent, unless she (first in time) was negligent in some way. I doubt, however, whether it is a fair summary. The defendants were aware of Mr Milenkovic’s claim in the VCAT proceeding to have a financial interest in properties that were not in his name. It would not have been a big leap to think that the plaintiff may then have a financial interest in a property in his name.
The final factor relied upon by the defendants is the same as in respect of the BKA Charge, i.e. that the plaintiff was untruthful in her evidence that she had given notice of her claimed interests to Mr Belleli in 2006. For the same reasons as discussed earlier, I do not consider it shown that this wrongful conduct had the required necessary and immediate connection to the plaintiff’s assertion of her interest by way of the trust.
Further, in my view, the plaintiff is correct in her submission that her lodgement of a caveat prior to the auction and the inherent and here disclosed and known risk in purchase at a sheriff’s auction provide a total answer to the claim by Legal Chicks for postponement. Mr Belleli agreed that he knew at the time that all that is sold at a sheriff’s auction is the judgment debtor’s interest, if any. The very Notice to Potential Purchasers for this sheriff’s auction that he exhibits to his affidavit describes the interest to be sold in this way.[198] He agreed that there may be unregistered equitable interests detracting from the judgment debtor’s interest, and that, as matter of principle, a purchaser at a sheriff’s auction takes the risk of such interests. He had made enquiries about the value of Stanley St and was aware of the value of the encumbrances disclosed by the title and by the Sheriff. He agreed that in bidding on behalf of Legal Chicks and agreeing to pay $23,000 for Mr Milenkovic’s interest he was taking a chance that he could ‘get rid of’ the Ares Global caveat and the interest it claimed. He agreed that a sheriff’s auction is a ‘lottery’ and that he agreed to pay $23,000 for something that he knew might be worthless, but might be worth $220,000 if he could remove the Ares Global caveat. He agreed that he was willing to take that chance. He agreed that he was aware, as an experienced lawyer, that he could have searched the title again on the day of the auction, and did not do so, although he said it was not a conscious decision not to do so. [199] Had he done so, of course, he would have been on notice that the plaintiff claimed an interest by way of trust. In my view, these factors leave no room for any postponement of the plaintiff’s prior interest.
[198]Exhibit JB 4 to Exhibit 7.
[199]T 283- T 288.
Conclusions and orders
I find that the plaintiff has proved her interest by way of the Milenkovic trust, but not by way of the Loan Agreement and Charge. Her interest is prior in time to that of the first and second defendants by way of the BKA Charge, and that of Legal Chicks by way of the auction. I do not consider that the defendants have shown that it should be postponed to either of those interests.
Enquiry today of the Funds in Court Office reveals that the principal now in court is $227,025.73, which includes interest to 1 June 2015. Interest is accruing from that date at the rate of approximately $3.10 per day. I will ask the parties to draw appropriate orders, in consultation with that Office, to provide that it be paid out in the following priority:
· as to one half of the principal, to the plaintiff or as she directs;
· from the remaining half of the principal, to the first and second defendants, or as they direct, the amount now owing under the BKA Charge, calculated to allow for interest from 1 April 2014 and on the basis that the amount so owing as at 31 March 2014 was $43,431.55; and
· the remainder of the principal, and any interest not yet applied to the principal, less any sum to be retained for taxation purposes, to the third defendant, or as it directs.
If the parties are unable to agree on the form or content of these orders, or in relation to costs, I will hear them further.
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