Porter v Bonarrigo
[2009] VSC 500
•13 NOVEMBER 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4800 of 2008
| JASON LLOYD PORTER and IAN CHARLES FRANCIS as TRUSTEES OF THE ESTATE OF ROSA MARIA SAFARO | Plaintiffs |
| And | |
| FRANCESCO BONARRIGO | First Defendant |
| And | |
| BELLA & ASSOCIATES PTY LTD (ACN 080 181 817) | Second Defendant |
| No. 5740 of 2009 | |
| SIMON SAFARO | Plaintiff |
| And | |
| FRANCESCO BONARRIGO | Defendant |
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JUDGE: | VICKERY J | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 1– 3 and 8 SEPTEMBER 2009 | |
DATE OF JUDGMENT: | 13 NOVEMBER 2009 | |
CASE MAY BE CITED AS: | PORTER & ANOR v BONARRIGO & ANOR | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 500 | |
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EQUITABLE CHARGE - Claim that debt was secured by a charge over prospective proceeds of sale of real property - Whether there was an agreement to charge - Agreement to charge not made out on the evidence.
EQUITABLE LIEN - Claim that debt was secured by a lien over prospective proceeds of sale of real property - Whether there was an equitable lien – Equitable lien not made out on the evidence.
EVIDENCE – Determination of authenticity of a signature without expert evidence in a civil case.
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| APPEARANCES: (No. 4800 of 2008) | Counsel | Solicitors |
| For the Plaintiffs | Mr DC Harrison | Leonard Legal |
| For the First Defendant | Mr JL Evans | White Cleland Pty |
| For the Second Defendant | Mr EW Moon | Thomas Egan |
| (No. 5740 of 2009) | ||
| For the Plaintiff | Ms PC Knowles | Frank Sabelberg Lawyers Pty Ltd |
| For the Defendant | Mr JL Evans | White Cleland Pty |
HIS HONOUR:
Background
In October 2007, Rosamaria Safaro (“Rosa Safaro”) and her estranged husband, Simon Safaro, were the joint registered proprietors of a property situated at 37 Sydney Road, Brunswick in Victoria, being the whole of the land contained in Certificate of Title Volume 8339 Folio 094 (the “Sydney Road Property” or the “Property”). The Property consisted of a shop with an upstairs dwelling.
Before her marriage to Simon Safaro, Rosa Safaro was known as Rosamaria Zavano.
By an Order of the Federal Magistrates Court on 2 October 2007, a sequestration order was made against Rosa Safaro declaring her bankrupt. The plaintiffs, Mr Jason Lloyd Porter and Mr Ian Charles Francis were appointed as joint trustees of her bankrupt estate (“the Trustees”).
At the date of the bankruptcy of Rosa Safaro, the mortgagee of the Sydney Road Property, Perpetual Trustee Company Ltd, was in the process of selling the Property as mortgagee in possession. The Property sold at public auction on 12 October 2007.
Settlement of the sale of the Sydney Road Property was effected on 19 November 2007, following which KHA Corporation Pty Ltd became the registered proprietor.
There was a surplus of the proceeds derived from the sale and there were competing claims to those funds. On 14 January 2008, $183,052.91 was paid into Court by the mortgagee into the Court’s Common Fund No. 1, Account No. 71240 (the “Common Fund”). With accrued interest, that sum deposited is now approximately $186,000.
There are four claims made to the Common Fund:
(a) the Trustees’ claim pursuant to s.58(1)(a) of the Bankruptcy Act 1966 (Cth) and s.77(3)(d) of the Transfer of Land Act 1958 (Vic) for one half of the funds in Court. This claim derives from Rosa Safaro’s half share in the Sydney Road Property at the time of her bankruptcy;
(b) Simon Safaro’s claim to one half of the funds in Court, representing his half share of the joint proprietorship of the Sydney Road Property;
(c) a claim by Rosa Safaro’s lawyers, Bella & Associates Pty Ltd, in respect of unpaid fees amounting to $7,036.78 pursuant to an equitable charge given to it by Rosa Safaro; and
(d) a claim by Francesco Bonarrigo, Rosa Safaro’s grandfather, to the entire sum deposited in the Common Fund.
In proceeding No. 4800 of 2008 (the “first proceeding”), the Trustees, by an amended originating motion, seek an order that one half of the sum standing in the Common Fund be paid to them. Francesco Bonarrigo is the first defendant and Bella & Associates Pty Ltd is the second defendant.
In proceeding No. 5740 of 2009 (the “second proceeding”) the plaintiff, Simon Safaro, by his amended originating motion seeks payment of the sum of $91,526.45 from the Common Fund to himself. Francesco Bonarrigo is the defendant to this proceeding.
The trials of the first proceeding and the second proceeding were conducted together and with common evidence. The findings made in these reasons are made in both proceedings.
As at 7 November 2007, being a date after the sale of the Sydney Road Property, and preceding the settlement of the purchase, there were five caveats lodged against the title to the Property, as follows:
(a) Caveat No. AF286757A was lodged against title on 21 August 2007 by Bella & Associates Pty Ltd, the second defendant in the first proceeding. The grounds of claim stated by the caveator were noted as “As chargee pursuant to an agreement dated 17 July 2007 made between Rosa Maria Safaro as chargor and Bella & Associates Pty Ltd as chargee”.
(b) Caveat No. AF411513N was lodged against title on 18 October 2007 by Francesco Bonarrigo, the first defendant in the first proceeding. The grounds of claim stated by the caveator were noted as “Pursuant to a constructive and resulting trust between the Registered Proprietors and the caveator”.
(c) Caveat No. AF411534E was lodged against title on 18 October 2007 by Eleanora Zavona. The grounds of claim stated by the caveator were noted as “Pursuant to a constructive and resulting Trust between the Registered Proprietors and the Caveator”.
(d) Caveat No. AF415992A was lodged against title on 19 October 2007 by Jason Lloyd Porter, one of the plaintiffs in the first proceeding. The grounds of claim stated by the caveator were noted as “Pursuant to a sequestration order made against the estate of Rosamaria Zavona also known as Rosa Maria Safaro on the 2 October 2007 and pursuant to section 58(1) and section 116 of the Bankruptcy Act 1996 (Cth)”.
(e) Caveat No. AF438458S was lodged against title on 19 October 2007 by KHA Corporation Pty Ltd. The grounds of claim stated by the caveator were noted as “Pursuant to a Contract of Sale dated 12/10/2007 between Perpetual Trustee Company Limited as Vendors in its capacity as Mortgagee pursuant to a Mortgage No. AD580774C and KHA Corporation Pty Ltd as Purchaser”.
The Claim of the Trustees in Bankruptcy
Pursuant to s.58(1)(a) of the Bankruptcy Act 1966 (Cth.) (“the Act”) the property of the bankrupt Rosa Safaro vests in the trustee of the estate of the bankrupt. In accordance with the provisions of s.58(1) of the Act, the trustee of the bankrupt estate of Rosa Safaro claims an entitlement to the surplus proceeds of sale following the sale of the Sydney Road Property by the mortgagee in possession. As the bankrupt held title as joint proprietor of the property in question, the trustees in bankruptcy claim to be entitled to an amount representing one half of the Common Fund.
Accordingly, in the first proceeding, the plaintiffs seek payment out of the Common Fund the amount of $91,526.45, as joint trustees of the bankrupt estate of Rosa Safaro.
The Claim of Francesco Bonarrigo
As to the caveat lodged against the title to the Sydney Road Property on 18 October 2007 by Francesco Bonarrigo, the first defendant in the first proceeding, the interest in the property which he claimed in support of his caveat was the subject of the principal controversy at the trial.
Mr Bonarrigo claims an equitable charge over the interest which Simon Safaro and Rosa Safaro had in the Sydney Road Property. He also claims that they are estopped from denying the existence of an equitable charge over the Sydney Road Property in his favour. Alternatively he claims an equitable lien over the proceeds of sale of the Property.
He further submits that the claim of the plaintiffs in the first proceeding, as trustees of the bankrupt estate of Rosa Safaro, and the claim of Bella & Associates, are claims which should be subordinated to his claim.
If Francesco Bonarrigo is able to establish a claim to the moneys in the Common Fund in priority to the claims of the trustees and Bella & Associates, by reason that the sum which he claims as due to him exceeds the amount in the Common Fund, the practical result would be that he would be entitled to the whole of the fund.
The Claim of Bella & Associates
As to the claim of the second defendant in the first proceeding, Bella & Associates Pty Ltd (“Bella & Associates”), this was founded on the following facts which were uncontroversial: Bella & Associates is a legal practice. On 31 May 2007, Ms Marina Bella, who was the sole legal practitioner in the practice received instructions from Rosa Safaro to act on her behalf in family law matters arising from the breakdown of her marriage to Simon Safaro. At that time, Rosa Safaro was a joint registered proprietor with her husband Simon Safaro of the Sydney Road Property. On 3 July 2007, Marina Bella rendered a tax invoice to Rosa Safaro dated 3 July 2007 for her professional costs and disbursements in acting on her behalf during the period 18 June 2007 to 3 July 2007.
On 17 July 2007, Ms Bella, having become concerned as to the capacity of Rosa Safaro to pay her firm’s legal fees, arrived at an agreement with her to secure payment of the outstanding legal costs. Ms Bella prepared an agreement entitled “Agreement to Pay Costs and Equitable Charge Over Land” (the “Charge Agreement”). This was executed by Rosa Safaro in about early August 2007. Pursuant to the Charge Agreement, Rosa Safaro charged her interest in the Sydney Road Property and another property in favour of Bella & Associates. On 16 August 2007, Ms Bella prepared caveats to record her legal firm’s interest as chargee pursuant to the Charge Agreement over Rosa Safaro’s interest in the Sydney Road Property and the other property. On that date, Ms Bella also lodged her caveats at the Victorian Land Registry. The caveats were recorded on the titles to the Sydney Road Property and the other property on 21 August 2007. Ms Bella has not been paid by Rosa Safaro for her legal services. The total sum of $7,036.78 remains due and owing.
The interest of Bella & Associates as chargee arose pursuant to the Charge Agreement dated 17 July 2007, and the caveat which was recorded over the title to the Sydney Road Property on 21 August 2007. As such, Bella & Associates claims priority over the claims of the other caveators whose various interests were recorded over the title to the Sydney Road Property subsequent to the caveat lodged by the firm.
The Claim of Simon Safaro
In the second proceeding, the plaintiff Simon Safaro claims the sum of $91,526.45 in his capacity as a joint proprietor of the Sydney Road Property, that sum representing fifty per cent of the Common Fund and being an amount equal to his share of the joint proprietorship in the Property.
Purchase and Financing of the Sydney Road Property
In about November 2001, Rosa Safaro, who was then known as Rosamaria Zavona, and Simon Safaro were planning to get married. They attended an auction and entered into a contract of sale at the auction for the purchase of the Sydney Road Property for the sum of $313,000. They intended to own it as an investment property.
By March 2002, Rosa Safaro and Simon Safaro were in default under the contract of sale for the purchase of the Sydney Road Property. They were unable to obtain finance to complete the purchase in spite of the vendors pressing them to settle.
They turned to Rosa Safaro’s grandfather Francesco Bonarrigo, for help. He is the first defendant in the first proceeding. At the time of the purchase he was 76 years old, retired and receiving the old age pension. He is now 83 years old. Francesco Bonarrigo offered to assist the couple.
Rosa Safaro gave evidence that she had a discussion with her grandfather Mr Bonarrigo to the effect, “Can we use your home as equity, so we can borrow enough money to settle the shop? We will take care of all repayments on the loans”. She also said that she had previously told him that her computer business was going well, and that Simon Safaro was leaving his job at Avalon Airport to come and work with her. She also gave evidence that she said to her grandfather words to the effect:
We need to settle the shop quickly, and we are going to take out a short-term loan. We will refinance that in about 6 months into a normal loan with principal and interest. We should be able to pay you out then. In the worst case, if we have to, we will sell the shop and pay you back first out of the proceeds. In that sense, you can’t go wrong. You can never lose your house as the money is embedded in the shop.
She said that Francesco Bonarrigo responded by say words to the effect of, “OK”.
Subsequently Rosa Safaro, Simon Safaro, and Francesco Bonarrigo entered into an agreement pursuant to which Mr Bonarrigo would become a joint borrower, along with Rosa Safaro and Simon Safaro, in respect of two loans.
The first loan was for the sum of $187,000.00 to be borrowed from Ringersma Investments Pty Ltd, Jelke Ringersma and Margaret Ringersma (together called “Ringersma”). On or about 25 March 2002 Rosa Safaro, Simon Safaro, and Francesco Bonarrigo entered into a loan agreement with Ringersma to borrow the sum which was to be repaid in full on 1 September 2002. This loan was secured against the Sydney Road Property ("the first Sydney Road Mortgage"). In order to secure this loan it was necessary for Francesco Bonarrigo to be given an interest in the Sydney Road Property. It was agreed between Rosa Safaro, Simon Safaro, and Francesco Bonarrigo that Mr Bonarrigo would take a one per cent interest. The funds derived from the Sydney Road Mortgage were applied in large part towards the purchase price of the Sydney Road Property.
A second loan was also obtained with the assistance of Francesco Bonarrigo. He was and remains the registered proprietor of the property known as 39 Crawley Street, Reservoir (the “Crawley Street Property”). Prior to March 2002, the Crawley Street Property was unencumbered by any mortgage and was owned by Francesco Bonarrigo in his own right. Francesco offered to assist with the purchase of the Sydney Road Property by contributing his Crawley Street Property as security for a loan.
Francesco Bonarrigo agreed to borrow the sum of $184,800.00 in his own right from Ringersma secured against his Crawley Street Property ("the First Crawley Street Mortgage"). The covenantors to the First Crawley Street Mortgage were Francesco Bonarrigo, Rosa Safaro and Simon Safaro. The proceeds derived from this loan were also applied in large part to pay the balance of the purchase price for the Sydney Road Property. This loan was also to be repaid in full on 1 September 2002.
Accordingly, in order to finance the purchase of the Sydney Road Property, two loans were advanced by Ringersma in March 2002:
(a)a loan in the sum of $187,000 secured by a mortgage over the property (the “First Sydney Road Mortgage”). The borrowers were Francesco Bonarrigo, Rosa Safaro and Simon Safaro. This loan was repayable on 1 September 2002; and
(b)a second loan in the sum of $184,800, borrowed by Francesco Bonarrigo secured by a mortgage over Mr Bonarrigo’s home (the “First Crawley Street Mortgage”). The covenantors were Francesco Bonarrigo, Rosa Safaro and Simon Safaro. This loan was also repayable on 1 September 2002.
The sale of the Sydney Road Property was settled on 25 March 2002. On that date, Rosa Safaro and Simon Safaro became joint registered proprietors of 99/100 equal undivided shares in the Sydney Road Property and Francesco Bonarrigo became a registered proprietor of the remaining 1/100 share.
In July 2002 Rosa Safaro and Simon Safaro married.
Refinancing of the Sydney Road Property
From about mid 2002, Simon Safaro and Rosa Safaro struck difficulties in relation to the refinancing of the Sydney Road Property. The existing finance was falling due for repayment by 1 September 2002. Simon Safaro and Rosa Safaro were not in a position to undertake the refinancing on their own.
In anticipation, in July 2002, Francesco Bonarrigo completed an application to refinance the loan over his home. The application was made to Perpetual Trustees Victoria Ltd.
Further, it was Simon Safaro’s wish for Francesco Bonarrigo’s one percent interest in the Sydney Road Property to be removed, if the proposed refinancing the property could be achieved without his interest continuing. After Rosa Safaro had discussed the matter with her finance broker, in late August 2002, Rosa Safaro and Simon Safaro had a conversation with Mr Bonarrigo at the property in which they said to him words to the effect, “You don’t need to be on the title any more”. Mr Bonarrigo said words to the effect that this was “OK”.
On or about 1 September 2002, a family dinner was held at the house of Rosa Safaro’s parents. Rosa Safaro’s mother, father and brother were present, together with Simon Safaro and Francesco Bonarrigo.
During the meal, the refinancing of the Sydney Road Property was discussed. As a result of the discussion Francesco Bonarrigo agreed to loan money to Simon Safaro and Rosa Safaro to enable them to refinance the Sydney Road Property using his Crawley Street Property as a mortgage security.
During the course of the discussion Rosa Safaro produced a document which she had drawn up entitled “Declaration between Francesco Bonarrigo, Simon Safaro and Rosamaria Safaro” (the “declaration”). The declaration was in the following form:
Declaration between Francesco Bonarrigo, Simon Safaro and Rosamaria Zavona
Made on the 1st September 2002.
Re: Loan taken out on Crawley St Reservoir 3073 under Francesco Bonarrigo
Principal Amount $187, 000
I Francesco Bonarrigo have taken out a loan against my property being 39 Crawley St Reservoir 3073. This money has been loaned to Rosamaria Zavona of 532 Bell St Preston 3072 and Simon Safaro of 37 Hardy St Brunswick 3056. For their personal use, including the purchase of 37 Sydney Rd Brunswick 3056.
Simon Safaro and Rosamaria Zavona are responsible for the repayments of the whole loan, including incurred costs, late fees, exit fees etc.
On or before the future sale of their 37 Sydney Rd Brunswick 3056 property the loan outstanding amount will be paid back in full. Including any costs incurred, exit fees and solicitor fee required to close accounts.
I am in my seventies and on the pension. I have taken out this loan in good faith that it will be paid out as soon as they can and that I will incur no cost or expenses.
By signing this statement we all understand and agree to the above.
On 16 September 2002, the First Crawley Street Mortgage was discharged and Mr Bonarrigo mortgaged his home in favour of Perpetual Trustees Victoria Ltd (the “Second Crawley Street Mortgage”). The Second Crawley Street Mortgage secured the repayment to Perpetual Trustees Victoria Ltd by Francesco Bonarrigo of a loan of $196,000 which he borrowed on his own account. By this means, on 16 September 2002, the First Crawley Street Mortgage was discharged and replaced with the Second Crawley Street Mortgage in favour of Perpetual Trustees Victoria Ltd.
On 4 October 2002, Francesco Bonarrigo executed a transfer of land pursuant to which he transferred his one-hundredth interest in the Sydney Road Property to Rosa Safaro. The consideration for this transaction, as shown on the transfer of land form, was “natural love and affection”. The transfer was lodged in the Victorian Land Registry on 16 October 2002. Thus by 16 October 2002 Rosa Safaro and Simon Safaro became the sole joint proprietors of the Sydney Road Property.
Also on 4 October 2002, the First Sydney Road Mortgage was varied. Mr Bonarrigo was removed as a borrower, the mortgage was increased by $16,450 from $183,000 to $203,450 and the due date for repayment was extended to 1 October 2003 (the “Extended Sydney Road Mortgage”).
The Extended Sydney Road Mortgage was refinanced a number of times.
On 23 December 2003, Rosa Safaro and Simon Safaro separated.
Authenticity of the Declaration
An issue arose as to the authenticity of the signatures to the declaration. Simon Safaro denied that the handwriting appearing on the document was his signature. No expert evidence was called on the point. The Court was referred to a number of samples of the handwritten signature of Simon Safaro on affidavits and other documents.
The authorship of disputed documents is a question of fact for the trier of fact to determine.[1] A sample of a person’s handwriting may be admissible where there is a dispute about the author of a document: s.148 of the Evidence Act 1958. The sample is only admissible if the Court is satisfied that it is genuine.[2] This requires the judge to be satisfied on the balance of probabilities that the sample was written by the alleged author.[3] The comparison may be undertaken without the assistance of expert evidence.[4] Accordingly, I am able to make a determination on the balance of probabilities as to the authenticity of the signature of Simon Safaro to the declaration.
[1]Adami v R (1959) 108 CLR 605; R v Knight (2001) 160 FLR 465; Jeans v Cleary [2006] NSWSC 647; R v Burns & Collins (2001) 123 A Crim R 226; R v Doney (2001) 126 A Crim R 271.
[2]Section 148 of the Evidence Act 1958.
[3]R v Browne-Kerr [1990] VR 78; cf R v Mazzone (1985) 43 SASR 330.
[4]Adami v R (1959) 108 CLR 605; Grayden v R [1989] WAR 208; R v Knight (2001) 160 FLR 465; Jeans v Cleary [2006] NSWSC 647; R v Burns & Collins (2001) 123 A Crim R 226; R v Doney (2001) 126 A Crim R 271.
I accept that Mr Bonarrigo, Rosa Safaro and Simon Safaro each executed the declaration on or about 1 September 2002, at the Zavona house in Bell Street, Preston. I reject the evidence of Simon Safaro that he did not sign the declaration.
Simon Safaro’s case on his alleged failure to sign the declaration lacked substance. He pointed to some errors within the document such as the amount of the loan taken out by Francesco Bonarrigo and his address. I do not regard these matters as significant on the question of the authenticity of his signature which appears on the document. He also suggested that the signature appearing on the declaration adjacent to his printed name was not his, in part because “the loop of the F was too big”. However, a comparison of signatures accepted by Simon Safaro to be his, shows that his signatures in fact varied significantly from one another, or as he put it, “Mine’s all over the place”; and on a near contemporaneous document, his signature has a large loop in the ‘F’.
I conclude, from an examination of the signature appearing on the declaration and the signatures on other documents which have been proven to contain Simon Safaro’s signature, that he did in fact sign the declaration and it was his signature which appears on the original of the declaration.
Further, Rosa Safaro’s mother Eleonora Zavona, her father John Zavona and her brother Francesco Zavona swore affidavits in the proceeding in which they gave evidence that they each witnessed Simon Safaro sign the declaration. For example, Francesco Zavona swore that: “I remember seeing Simon, my grandfather and Rose each sign the document at the table.” He said further, on being shown a copy of the declaration: ”I recognise the signatures on that document as being the signatures of Simon, Rose and my grandfather”. Eleonora Zavona, John Zavona and Francesco Zavona were not required to attend for cross-examination and their evidence was not challenged.
I also accept that when Francesco Bonarrigo signed the declaration, Simon Safaro was very grateful. In the words of Rosa Safaro’s father, John Zavona:
He knelt on his knees and held my father in law’s hands and said “Thank you Nonno, I appreciate you doing this for us.”
Discussions Between Rosa and Simon Safaro and Francesco Bonarrigo
I am satisfied that Francesco Bonarrigo, and Rosa and Simon Safaro had discussions prior to the making of the loans secured by the First Sydney Road Mortgage and the First Crawley Street Mortgage regarding the servicing and repayment of the loans. The essence of these discussions was that Mr Bonarrigo would loan funds which he borrowed to both Rosa Safaro and Simon Safaro who would both assume full responsibility to service the First Sydney Road Mortgage and the First Crawley Street Mortgage. Further, it was agreed that on or before any sale of the Sydney Road Property, Mr Bonarrigo would be repaid in full. Such discussions are not only plausible, but were also likely to have occurred prior to Mr Bonarrigo proceeding with the transactions.
Although there were inconsistencies in the evidence of Rosa Safaro on the point, I find that the declaration signed by the parties dated 1 September 2002 did reflect the earlier conversations which had taken place between Rosa Safaro, Simon Safaro and Francesco Bonarrigo which had taken place in March 2002, at about the time when the First Sydney Road Mortgage and the First Crawley Street Mortgage were entered into to finance the purchase of the Sydney Road Property. It also reflected the discussions which had taken place subsequently in relation to the refinancing of the Sydney Road Property, up to and including September 2002.
As to the evidence of Simon Safaro, to the effect that he was not party to any agreement I have found, and that he was not personally liable to Mr Bonarrigo for any loan, I reject his evidence. I find it implausible that he would take the benefit of transactions of the kind which were entered into by Mr Bonarrigo in this case, without agreeing with Mr Bonarrigo to meet the payments which fell due under the mortgage loans and without agreeing to at least the rudimentary mechanism for repayment of the loan taken out personally by Mr Bonarrigo which I have described.
Simon Safaro said that he was present during conversations between Rosa Safaro and her grandfather Franceso Bonarrigo about borrowing of money, but that he could only vaguely recall them. He said that, not being a speaker of the Italian language, he had some difficulty understanding Mr Bonarrigo’s English. He said that he left most of the financial arrangements and the discussions with Mr Bonarrigo regarding the Sydney Road Property and the finance of its purchase up to Rosa Safaro to conduct. However, I am satisfied that the discussions conducted by Rosa Safaro with her grandfather about the financing of the Sydney Road Property were undertaken by her on behalf of and as agent for Simon Safaro, and that he had knowledge of the essence of the arrangement as I have found it to be.
Mr Bonarrigo’s evidence in cross-examination was consistent with the agreement being that he would be repaid his loan moneys in due course, or at least on or before any sale of the Sydney Road Property. He said in the course of giving evidence in cross-examination, which I accept:
If things went well with that property, were you expecting a share of the profit? – Yes I was expecting they would give me either the property or the money.
Mr Bonarrigo also said:
And it was an investment by you, wasn’t it?---No, I wasn’t getting anything out of it. I was getting – what I was getting was that I would get my money back when things went well.
And maybe a profit too?---No I never wanted. I didn’t really need it. I was working. Both of us worked.
Mr Bonarrigo also said:
Do you remember any conversation with Rosa Maria before you gave her the 184,000?---Yeah, well, she was talking. She didn’t have enough money for this contract. 27 Sydney Road, Brunswick. They didn’t have enough money. It wasn’t a party…
Rosa Maria borrowed $184,000 from you, didn’t she?---Yes.
And she promised to pay it back to you?---Yes, they were giving them back … When they sold the property or the business went well, really well.
... if the business went well they would give it back.
He said further:
I never asked how much you sold it for – and I don’t know how much they sold it for, because – as much as you sold it for, that’s the money you have to give me.
And further:
Rosa told me that, you know, as soon as they either sold it or – or the business went well, I would get my money back because, no, it wasn't a present and they would pay back – pay it back.
In particular, I reject the case advanced by Simon Safaro that Mr Bonarrigo agreed to gift the money provided by him to Rosa Safaro and himself. As to this suggestion, Mr Bonarrigo said in his cross–examination:
Was the $184,000 a present?---No, not a present. You give presents at Christmas, not $184,000. Presents are for parties, for celebrations.
…
Was the $184,000 a gift to your granddaughter Rosa Maria?---No, no. What present? What gift?
Further, Simon Safaro conceded at least one part of the arrangement as I have found it. He in effect conceded that that both he and Rosa Safaro were to make all payments on the loan(s) taken out by Mr Bonarrigo upon the security of his Crawley Road property. Mr Safaro said in his cross-examination in this regard:
… even if it were a gift, it was a gift that had strings attached didn’t it, because you and to make all of the payments of the loan?---To maintain the loan.
Yes?--- We did do that, yeah.
Simon Safaro’s evidence that the advance of $184,000 derived from the funds borrowed by Francesco Bonarrigo secured by a mortgage over his home was a gift to him and Rosa Safaro was a fabrication. His evidence was motivated by his desire to avoid having to pay Mr Bonarrigo any part of the proceeds of sale of the Sydney Road Property, and to keep half of those proceeds for himself. His justification that he had no continuing obligation towards Mr Bonarrigo, because he had separated from Rosa Safaro, was remarkable. He said in his cross-examination on this matter:
You accepted, earlier, when I asked you in evidence, that in March 2002 you had an obligation to continue to pay off Mr Bonarrigo’s loan and you accepted that in September 2002, the arrangement was that you would continue to meet all of the mortgage repayments?---That’s if we were still together with me and Rosa.
It was only if you were still together. Is that right?---To make the repayments together.
…
Are you going to pay them back to Mr Bonarrigo?---It was never given to me as a loan like that, to make money out of it.
Do you feel you have any obligation to pay Mr Bonarrigo back?---No, because I’ve worked for my hard work for nearly ten years, and I’ve got nothing but a lost home, property, I don’t have my daughter anymore, I don’t have a car, I don’t have anything left because of her and what this has done to me and affected my life. I don’t have anything.
This explanation provided by Simon Safaro has no basis in fact or law.
I find that the monies advanced by Francesco Bonarrigo to Rosa Safaro and Simon Safaro, secured by mortgages over his Crawley Street Property, were advanced by way of a loan to them both. Both Rosa Safaro and Simon Safaro remain jointly and severally liable to Mr Bonarrigo for the servicing and repayment of the current loan in full.
The plaintiffs directed some cross-examination at trial to showing that not all of the money originally borrowed by Francesco Bonarrigo from Ringersma was applied to pay for the Sydney Road Property, and that upon the refinance of Mr Bonarrigo’s mortgage with Perpetual, that the additional $11,200 of borrowed funds was not applied in connection with the Sydney Road Property. On the other hand, Rosa Safaro, Simon Safaro and Francesco Bonarrigo maintained the position that all of the moneys borrowed by Mr Bonarrigo were applied by them in connection with the financing or refinancing of the property.
I am satisfied that nearly all of the monies obtained from the borrowings of Franceso Bonarrigo were applied to the purchase and refinancing of the Sydney Road Property, and that this was the primary purpose of the borrowings. However, I am also satisfied that a relatively small proportion of the funds advanced to Mr Bonarrigo by Ringersma and Perpetual was used by Rosa Safaro and Simon Safaro for purposes other than to finance the Sydney Road Property. Given that the other parties did not adduce any positive evidence to this effect, I am not in a position to determine precisely the quantum of the funds advanced which fell into this category. Nevertheless, in my view, this finding does not in itself detract from the claim made by Mr Bonarrigo that he obtained a security interest in the Sydney Road Property which he now asserts.
The Applicable Law – Equitable Charges
Francesco Bonarrigo submitted that the discussions between himself, Rosa Safaro and Simon Safaro, including their earlier discussions and agreement in the first half of 2002, gave rise to an oral equitable charge in favour of Mr Bonarrigo over their interest in the Sydney Road Property. The consequence of this is that, so it was submitted, upon the sale of the Property, the proceeds of sale after the payment of the registered mortgagee, were impressed with a proprietary interest in favour of Mr Bonarrigo, and the Common Fund paid into Court, representing those proceeds, is impressed with that interest.[5]
[5]See Re Bruynius [1995] 1 Qd R 492. See also Jackson v Richards [2005] NSWSC 630 at [18]-[20].
It was submitted that the essential test is whether the parties intended that a separate fund (here, the Sydney Road Property) was to be made available to Mr Bonarrigo so that if the property were to be sold, he would be paid from the proceeds of sale.[6] As was said by Pincus JA and Derrington J in Re Bruynius:[7]
It was said in Durham Bros v. Robertson [1898] 1 QB 765 at 769 per Chitty L.J., that: “To operate as an equitable assignment no particular form of words is required in the document: an engagement or direction to pay, out of a debt or fund, a sum of money constitutes an equitable assignment, though it does not operate as an assignment of the whole fund or debt”.
It was submitted that the evidence leads to the conclusion that a charge was created in March 2002. The document executed in September 2002 was said to be consistent with the existence of the charge, but did not create it. It was submitted further that the document executed in September 2002 is sufficient written evidence of the creation of the charge in March 2002, such that the charge complies with s.53 of the Property Law Act1958 (Vic) (the “PLA”).
[6]See Aitken, The equitable charge: A remedy in search of an explanation (2007) 18 JBFLP 157 at pp.159-160.
[7][1995] 1 Qd R 492 at 498.
An equitable charge is created when property is expressly or constructively made liable to the discharge of a debt or some other obligation and the charge confers on the chargee a right of realisation by judicial process, such as an order for sale: Swiss Bank Corp v Lloyds Bank Ltd;[8] Re Cosslett (Contractors) Ltd.[9] For example, an agreement that a person may place a caveat on another’s title has been held to constitute a charge.[10] In Re Cosslett (Contractors) Millett LJ held:[11]
It is of the essence of a charge that a particular asset or class of assets is appropriated to the satisfaction of a debt … so that the chargee is entitled to look to the asset and its proceeds for the discharge of the liability.
[8][1982] AC 584 at 594-5 per Buckley LJ, CA.
[9][1998] Ch 495 per Millett LJ, CA at 508. See also, National Provincial and Union Bank of England v Charnley[1924] 1 KB 431 at 440 per Bankes LJ.
[10]Murphy v Wright (1992) 5 BPR 11,734; (1992) NSW ConvR 55-652; BC9203050; Esanda Finance Corp Ltd v Leserv (No 4) Pty Ltd (unreported, SC(QLD), Dowsett J, 1290/91, 9 June 1992) (affirmed Esanda Finance Corp Ltd v Leserv (No 4) Pty Ltd (unreported, CA(QLD), Pincus, McPherson and White JJ, 130/92, 6 November 1992, BC9202155)); Troncone v Aliperti (1994) 6 BPR 13,291; (1994) NSW ConvR 55-703.
[11] Ibid at 508.
An equitable charge is to be distinguished from a purely contractual arrangement giving rise to no proprietary right.[12]
[12]See, for example, Taylor v Freeway Mutual Pty Ltd(1978) 22 ALR 281 (where the court found merely a contractual arrangement).
Whether a particular set of circumstances gives rise to an equitable charge will depend on the intention of the parties, ascertained objectively from the language used by the parties in the instrument in the light of surrounding circumstances. In Swiss Bank v Lloyds, Buckley LJ observed:[13]
But notwithstanding that the matter depends upon the intention of the parties, if upon the true construction of the relevant documents in the light of any admissible evidence as to surrounding circumstances the parties have entered into a transaction the legal effect of which is to give rise to an equitable charge in favour of one of them over the property of the other, the fact that they may not have realised this consequence will not mean that there is no charge. They must be presumed to intend the consequences of their acts.
[13]Ibid at 595-6.
There is no required form an equitable charge should take. However, the instrument must indicate the parties’ intention that the relevant property should constitute a security: AVCO Financial Services Ltd v White,[14] in which Gillard J citing Romer J in Cradock v Scottish Provident Institution[15] said:
To constitute a charge in equity by deed or writing it is not necessary that any general words of charge should be used. It is sufficient if the court can fairly gather from the instrument an intention by the parties that the property therein referred to should constitute a security.[16]
[14][1977] VR 561 at 564.
[15](1893) 69 LT 380, at 382.
[16]The learned judge's decision in Cradock v Scottish Provident Institution was subsequently affirmed in the Court of Appeal: see (1894) 70 LT 718. See also Wilkinson v Wilkinson (1819) 3 Swan 515 at 527; 36 ER 958 at 962; Spooner v Sandilands (1842) 1 Y & C Ch C390 at 399.
In the context of cases involving loans to purchase property and subsequent claims that the loan agreements constitute equitable charges, clear language indicating the parties’ intention to create a charge is required before the proprietary interest will arise. Thus in Berrington v Evans,[17] a debtor agreed to repay his debts on a given day and in the event of non-payment “to sell so much of his estates as shall be found necessary for that purpose”. This was held to be a personal undertaking to repay a debt. The words were “too general to create a specific lien upon lands”.
[17](1839) 3 Y & C Ex 384.
The leading authority in Australia on equitable charges remains the decision of the Privy Council in Palmer v Carey,[18] on appeal from the High Court of Australia.[19] Palmer concerned a question as to whether an agreement to lend money to purchase goods amounted to an equitable charge over the goods or the proceeds from the sale of the goods. The effect of the agreement was that the borrower was to sell the goods as soon as possible and to pay the proceeds of sale into the lender’s credit at the lender’s bank. The Privy Council reasoned[20] that under the agreement, when the money was borrowed, it became the borrower’s money and the lender became a creditor. Similarly, the proceeds from selling the goods belonged to the borrower. There was nothing in the agreement to give the lender “a property by way of security or otherwise in the moneys of the borrower before or after he, the lender, has them in his charge”. Lord Wrenbury, in delivering the judgment on behalf of their Lordships said:[21]
The law as to equitable assignment, as stated by Lord Truro in Rodick v. Gandell, is this: “The extent of the principle to be deduced ... is, that an agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund coming to the debtor, or an order given by a debtor to his creditor upon a person owing money or holding funds belonging to the giver of the order, directing such person to pay such funds to the creditor, will constitute a valid equitable charge upon such fund, in other words, will operate as an equitable assignment of the debts or fund to which the order refers”.
An agreement for valuable consideration that a fund shall be applied in a particular way may found an injunction to restrain its application in another way. But if there be nothing more, such a stipulation will not amount to an equitable assignment. It is necessary to find, further, that an obligation has been imposed in favour of the creditor to pay the debt out of the fund. [Citation omitted and emphasis added.]
[18](1926) 37 CLR 545.
[19](1924) 34 CLR 380.
[20] Supra at 548.
[21](1926) 37 CLR 535, 548.
In AVCO Financial Services v White[22] this Court was called to determine whether a written loan agreement to fund the purchase of a property created an equitable charge over the property of the borrower. The agreement included the following clause:
[22][1977] VR 561.
As further security for the payment of the loan and interest I agree … to charge (as beneficial owner) all freehold and leasehold interest in the land which I may now have or during the currency of the loan may acquire …
Gillard J summarized the essence of an equitable charge in the following terms:[23]
An equitable charge for a debt is a security whereby only a right to payment of the debt out of the property is conferred by the owner of the property to the holder of the security. The remedy of the holder of the security on default in payment of the debt was to apply to a court of equity to have the property sold and the proceeds paid into court.[24]
Gillard J in relation to the document before him pointed to the phrase “as further security for a payment of the loan” and held that the words “clearly indicate the nature or the purpose of the paragraph” and the parties’ intention to create an equitable charge.[25]
[23]Ibid at at 563.
[24]Citing Matthews v Gooday (1861) 31 LJ Ch 282; Tennant v Trenchard (1869) LR 4 Ch App 537 at p.542; Melbourne Tramways Trust v Melbourne Tramways and Omnibus Co (1887) 13 VLR 487.
[25]Ibid at 564.
In McMillan v Dunoon[26] this Court also considered whether the terms of a loan agreement gave rise to an equitable charge. The Defendant relied on a clause in the loan agreement which provided “it is a precondition of the loan advanced that the borrower provide the lender with security particularized in Item 7 …”. Item 7 envisaged that a of charge would be executed. A deed in this form was never executed. Gillard J stated:
[T]he issue comes down to whether the Court can fairly gather from the words of the agreement an intention by the parties that the property referred to in the agreement was to be charged with payment of the debt. In other words, did it constitute a security?[27]
As the defendant had a contractual right to specific performance of the obligation requiring the execution of the deed creating the equitable charge, Gillard J held that which ought to be done and held that the agreement gave rise to a charge. The defendant was able to rely upon clear words which evidenced the parties’ intention to create a charge.
[26][2005] VSC 440 per Gillard J.
[27][2005] VSC 440 [30].
Where funds are specifically segregated for the purpose of repaying a debt, the courts have been prepared to find an intention to create an equitable charge over the fund. Jackson v Richards[28] decided by the NSW Supreme Court, was such a case. White J held:
An agreement between a debtor and his creditor that the debt owing shall be paid out of a specific fund coming to the debtor will create a valid equitable charge upon the fund and operate as an equitable assignment of it. (Rodick v Gandell (1852) 1 De GM & G 763 at 777, 778). However, for this principle to apply, there must be a specific fund from which the debt owing is to be paid. In Swiss Bank Corporation v Lloyds Bank Limited [1982] AC 584, Buckley LJ said (at 595):
“If the debtor undertakes to segregate a particular fund or asset and to pay the debt out of that fund or asset, the inference may be drawn, in the absence of any contra indication, that the parties’ intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owed to him by the debtor”.
It was found that there was no express agreement that if the relevant property were sold, the defendant would keep his share in a separate fund from which his debts would be met. Rather, there was a broad agreement that if things went badly, the property could be sold and the defendant would be in a position to repay the debt as a result of his assets being augmented. Consequently, there was no agreement found which gave rise to an equitable charge. White J in the course of his reasoning noted, that:
Very slight differences of language could produce different legal outcomes. If the defendant said, “I will pay your costs out of the proceeds of sale”, that might imply that the proceeds of sale would be kept separate and the debt would be paid from the separate fund. On the other hand, if the defendant said “I will pay your costs when I receive the proceeds of sale”, no such implication could be drawn”.[29]
[28][2005] NSWSC 630 at [18].
[29] Ibid at [20].
Whether Mr Bonarrigo had a Security Interest in the Sydney Road Property
On the basis of the arrangement as I have found it to be between Rosa Safaro, Simon Safaro and Francesco Bonarrigo, the question is whether it gives rise to an interest in favour of Bonarrigo in the Sydney Road Property, with a corresponding interest in the proceeds deposited in the Common Fund.
I am satisfied that it was not the intention of either Rosa Safaro, Simon Safaro and Francesco Bonarrigo at the time when they entered into the various transactions to finance or refinance the Sydney Road Property, that Mr Bonarrigo was to have any security interest in the land. A number of factors point to this conclusion.
In the first place, no such interest was recorded in any caveat lodged against the title to the Sydney Road Property, or indeed in any other note or memorandum.
The declaration dated 1 September 2002 says in relation to the Sydney Road Property merely that:
On or before the future sale of their 37 Sydney Rd Brunswick 3056 property the loan outstanding amount will be paid back in full. Including any costs incurred, exit fees and solicitor fee required to close accounts. [Emphasis added].
The declaration was a document drawn up by Rosa Safaro, and, as it obvious from the text, she had no legal skills. Nevertheless, in my opinion, it did not manifest an intention that Francesco Bonarrigo was to gain any security interest in the property. The reference to the Sydney Road Property being their property, on the proper construction of the declaration, was intended to refer to the interests of Rosa Safaro and Simon Safaro in that property. The declaration is made by Francesco Bonarrigo in the first person, and makes reference to Rosa and Simon Safaro in the third person. No mention is made of any interest of Mr Bonarrigo in the Sydney Road Property.
Secondly, no step was taken to confer any security interest in favour of Francesco Bonarrigo in the Sydney Road Property. Indeed, the opposite is the case. As at 25 March 2002, Mr Bonarrigo became the registered proprietor of a 1/100 share in the property. However, on 4 October 2002 this interest was extinguished when he transferred his 1/100 share to Rosa Safaro by a transfer “for natural love and affection” which was registered in the Victorian Land Registry on 16 October 2002. There was no suggestion that this transaction was other than a voluntary and freely consented to on the part of Mr Bonarrigo. In this way, the only interest recorded in the Sydney Road Property in favour of Francesco Bonarrigo was extinguished and his capacity to prevent a sale of the property without being paid out, was also extinguished.
No other document was produced which recognised any security interest of Mr Bonarrigo in the Sydney Road Property. In her statement of affairs filed pursuant to the Bankruptcy Act 1966, Rosa Safaro did not identify Mr Bonarrigo’s alleged equitable charge or lien or indeed, any other security interest in his favour and she did not list him as a secured creditor in the document. Further, in the course of giving instructions to Ms Namita Sethi, a senior accountant engaged to assist the trustees in administering her bankrupt estate, Rosa Safaro was noted as saying in relation to the loan borrowed from her grandfather that it was “unsecured”. The note taken of these instructions by Namita Sethi was in the following form:
39 Crawley St – Grandfather’s property – borrowed money hence (unsecured).
Although a statement made by Rosa Safaro that Mr Bonarrigo was an unsecured creditor of hers is not an admission against Mr Bonarrigo, it is evidence which points to the intention of the parties at the time of entry into the loan transactions not to confer upon him any proprietary interest in the Sydney Road Property.
Rosa Safaro related conversations between herself and her grandfather in her evidence recorded in her affidavit sworn in February 2009 which went beyond what she recorded in the declaration drafted by her dated 1 September 2002. She said that she told Mr Bonarrigo in relation to the loan transactions entered into in March 2002:
In the worst case, if we have to, we will sell the shop and pay you back first out of the proceeds. In that sense, you can’t go wrong. You can never lose your house as the money is embedded in the shop.
She said that Mr Bonarrigo responded with words to the effect, “OK”. I do not accept these statements as accurate. I am not satisfied that these statements were in fact made. Mr Bonarrigo was not able to confirm that they took place or that words to this effect were said at the time. These were statements which were calculated to bolster Rosa Safaro’s case that Mr Bonarrigo was given a proprietary interest in the Sydney Road Property. They were not included in her earlier affidavit dated 27 March 2008, nor were the statements reflected in the declaration she drew up dated 1 September 2002. I conclude that Rosa Safaro’s recollection of events in this regard was not reliable.
I am satisfied that the agreement to repay Mr Bonarrigo gave the Safaros maximum flexibility. The declaration contemplated that the loan could be repaid before the sale of the Sydney Road Property; the loan will be used for purposes other than the purchase of the Sydney Road Property; and the loan could be paid back with the Safaros continuing as the owners of the Sydney Road Property. It was intended to be a short-term agreement with Mr Bonarrigo being paid out as soon as possible.
An Equitable Charge Must Be Recorded in Writing
Section 53 of the Property Act 1958 (Vic) (the “Property Law Act”) requires an equitable interest in relation to property to be in writing and signed by the person creating the interest. Section 53(1)(a) provides:
53. Instruments required to be in writing
(1)Subject to the provisions hereinafter contained with respect to the creation of interest in land by parol -
(a)no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorized in writing, or by will, or by operation of law.
Accordingly, discussions between the parties in March 2002 and September 2002, could not constitute an enforceable equitable charge.
Conclusion as to an Equitable Charge
The question is whether the declaration made and signed in September 2002 gave rise to an equitable charge.
I conclude that it did not.
I am not satisfied that the parties intended that Mr Bonarrigo was to be granted a security by way of a right of sale of the Sydney Road Property in pursuance of a court order, nor could such a right be inferred from the objective conduct of the parties.
Applying the principles reflected in the case law to which I have referred, in my opinion Rosa Safaro and Francesco Bonarrigo have not shown that an agreement was made, either as constituted by oral conversations or by the declaration or a combination of these sources, which had the effect of creating an equitable charge over the Sydney Road Property or the proceeds of its sale.
Equitable Estoppel and Statute of Frauds Estoppel
It was put in the alternative that through his discussions with Rosa Safaro and Simon Safaro in March 2002, Francesco Bonarrigo was led to believe by them that they would pay out any debt secured by a mortgage over Mr Bonarrigo’s home from the proceeds of sale of the Sydney Road Property, and that he would incur no cost, expense or loss by reason of the giving by him of a mortgage over his home. It was submitted that Mr Bonarrigo relied upon the representation made by Rosa Safaro and Simon Safaro to this effect in entering into the First Crawley Street Mortgage, and giving the loan money to them to settle the purchase of the Sydney Road Property. Thus, it was said, they were estopped from denying the existence of an equitable charge over the Property in favour of Francesco Bonarrigo.
Such an estoppel was advanced as a promissory estoppel of the Waltons v Maher type,[30] to which s.53 of the Property Law Act1958 would have no application.[31] Alternatively it was put as a more specific Statute of Frauds estoppel, pursuant to which the representations relied upon gave rise to an equity in Mr Bonarrigo estopping Rosa Safaro and Simon Safaro from relying upon s.53 of the Property Law Act1958.[32]
[30]See: Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
[31]Tipperary Developments Pty Ltd v Western Australia (2009) 258 ALR 124 at [128]-[145].
[32]See: Collin v Holden [1989] VR 510.
The precise terms of the conversations which took place in March 2002 and subsequently between Rosa Safaro and Simon Safaro and Francesco Bonarrigo and between other family members are unclear. However, I am not satisfied that it was ever said to Mr Bonarrigo, either specifically or by inference, that Rosa Safaro and Simon Safaro would pay out any debt secured by a mortgage over Mr Bonarrigo’s home from the proceeds of sale of the Sydney Road Property. The declaration made in September 2002, which would have been expected to contain such a representation if it had been previously made, did not say this. Indeed, the declaration provided considerable flexibility to the Safaro’s as to when, and by what means, Mr Bonarrigo would be repaid - the only stipulation being that he would be repaid “on or before the future sale of their” Sydney Road Property”.
Further, even if such a statement had been made to Mr Bonarrigo, I am not satisfied that he relied upon it in making the loan moneys available to Rosa Safaro and Simon Safaro. His evidence was extremely vague on the issue and did not go this far.
I therefore am compelled to reject Mr Bonarrigo’s claims founded upon promissory estoppel or the Statute of Frauds estoppel.
Equitable Lien
Alternatively, it was submitted that an equitable lien in favour of Mr Bonarrigo should be found to exist in respect of the proceeds of sale, in all the circumstances of the case.[33]
[33]See Hewett v Court (1983) 149 CLR 639 at 668.
Generally, an equitable lien is a right against property (real or personal)[34] of another, which arises automatically by implication of equity to secure the discharge of actual or potential indebtedness.[35] An equitable lien does not depend either upon contract or upon possession.[36] It arises by operation of law, under a doctrine of equity “as part of a scheme of equitable adjustment of mutual rights and obligations”.[37] It has been held that the essential feature for imposition of an equitable lien is that “solid and substantial justice” requires it,[38] or, put another way, that it would be unconscionable for the property owner to retain the benefit,[39] or that an equitable lien is necessary to protect a party against some inequitable loss.[40]
[34]The property may be “land, or personalty, or both”: Hewett v Court (1983) 149 CLR 639 at 654 per Wilson and Dawson JJ citing Davies v Thomas [1900] 2 Ch 462 at 468; Re Stucley [1906] 1 Ch 67 at 75–6 and 79–80.
[35]Hewett v Court (1983) 149 CLR 639 at 645 per Gibbs J; at 654 per Wilson and Dawson JJ; and at 663 per Deane J.
[36]Hewett v Court (1983) 149 CLR 639, at 645 per Gibbs CJ.
[37]Davies v Littlejohn (1923) 34 CLR 174 at 185 per Isaac J, quoted in Hewett v Court (1983) 149 CLR 639 at 645 per Gibbs CJ.
[38]The rule has been said to be founded on “solid and substantial justice”: Rose v Watson (1864) 10 HL Cas 672 at 684, Lord Cranworth, cited by Gibbs CJ with approval in Hewett v Court (1983) 149 CLR 639 at 645.
[39]Morris v Morris [1982] 1 NSWLR 61 per McLelland J, cited in Cadorange Pty Ltd (in liq) v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26 at 38 per Young J.
[40]See McClintock, Equity 2nd ed, § 118 as referenced in Stephenson Nominees Pty Ltd v Official Receiver on behalf of Official Trustee in Bankruptcy; Ex Parte Roberts (1987) 76 ALR 485 at 504 per Gummow J.
In Sykes, Law of Securities, 5th ed. (1993), the [41] learned authors describe the nature of an equitable lien in the following passages:
[41]at 199
The equitable lien differs from the equitable charge mainly in the mode of creation. It arises by implication of law in certain circumstances. Once in existence, it basically confers the same remedies, viz. the powers of sale and appointment of a receiver but only of course through the court. …..The equitable lien arises purely from implication of law. …The equitable lien, like the equitable charge, is a pure hypothecation; it involves no transfer of actual or potential ownership, it does not depend on possession and it rests only on an equity, with the result that it is unenforceable against the bona fide purchaser for value without notice of the legal estate. Nevertheless, it is an “interest” in land; it is of a proprietary character.
…….
The circumstances in which an equitable lien arises have never been exhaustively classified and the list is possibly not a closed one, but the following are the main cases:
(a) A vendor of land who has parted with the legal title by way of conveyance has an equitable lien over the land to the extent of purchase money unpaid, such lien being available against all save the bona fide purchaser for value of the legal estate without notice of the fact of non-payment…..
(b) Conversely, a purchaser of land who has paid the purchase money before conveyance has a lien in equity to the extent of the purchase money paid. When the purchaser [properly] declines to complete, he or she has a lien for the deposit and any payment the purchaser has made but not of course if the sale goes off through her or his default….
(c) A trustee has a lien in equity on trust property in respect of money properly expended by her or him in due performance of her or his trustee functions……
(d) A beneficiary under a trust has a lien over land which a trustee has purchased in breach of trust, though in certain circumstances, viz. when the property has been purchased entirely with trust money and the beneficiaries are all sui9 juris, the latter have a right tom elect to take the property purchased in substitution for the trust property….
(e) Beneficiaries who have suffered from a breach of trust may impound the interest of one of their number who has been a party to it and presumably have a lien on such interest…..
(f) On a dissolution of partnership by retirement, death or bankruptcy of a partner, the retiring partner or partners, continuing partner or partners, or the representatives of a deceased partner, respectively, have a lien on all assets belonging to the partnership for the satisfaction of all claims arising in respect of the joint venture before dissolution…..
(g) A person who has laid out money upon a property under a mistaken belief that he or she is entitled to it or has an interest in it will have a lien for the amount thereof, provided the owner has , by her or his conduct in standing by with knowledge of such mistake, estopped her or himself from contending to the contrary…..
Other cases are more doubtful.
[Citations omitted]
There is a general rule that no lien will arise in favour of a person who has expended money on property in which he or she has no interest, for the benefit of another, where the person benefited had no knowledge of the service being performed. This principle was cited by Bowen LJ in Falcke v Scottish Imperial Insurance Co.[42], who noted an exception to this proposition in maritime law:
With regard to salvage, general salvage, and contribution, the maritime law differs from the common law. That has been so from the time of Roman law downwards. The maritime law, for the purposes of public policy and for the advantage of trade, imposes in these cases a liability upon the thing saved, a liability which is a special consequence arising out of the character of mercantile enterprises, the nature of sea perils, and the fact that then thing was saved under great stress and exceptional circumstances. No similar doctrine applies to things lost upon land, not to anything except ships or goods in peril at sea.
[42](1886) 34 Ch. D. 234 at 248 - 249
In Falcke, Bowen LJ further observed: [43]
With regard to ordinary goods upon which labour or money is expended with a view to saving them or benefiting the owner, there can, as it seems to me, according to the common law be only one principle upon which a claim for repayment can be based, and that is where you can finds facts from which the law will imply a contract to repay or to give a lien. It is perfectly true that the inference of an understanding between the parties – which you may translate into other language by calling it an implied contract – is an inference which will unhesitatingly be drawn in cases where the circumstances plainly lead to the conclusion that the owner of the saved property knew that the other party was laying out his money in the expectation of being repaid. In other words, you must have circumstances from which the proper inference is that there was a request to perform the service. …….But wherever you find that the owner of the property saved knew of the service being performed, you will have to ask yourself (and the question will become one of fact) whether under all the circumstances there was either what the law calls an implied contract for repayment or a contract which would give rise to a lien?
[43]Supra at 249
However, in Falcke the relevant property on which money was expended by a third party, was a policy of life insurance. This was preserved by the third party paying the premium for the relevant year. In other words, the money expended by the third party was paid directly in relation to the relevant property.
A similar case in which money was expended directly in relation to the subject property is Hewett v Court,[44] where the High Court decided that an equitable lien arose in a case where the contract was held not to be one of sale but one for work an labour done by a builder on the construction of a prefabricated house to be erected on the purchaser’s land. The builder became insolvent and was unable to complete the structure. The purchaser claimed an equitable lien over the uncompleted structure to secure the progress payment paid under the contract. Deane J referred to the concept of an equitable lien in the following terms:[45]
Though called a lien, it is, in truth, a form of equitable charge over the subject property … in that it does not depend on possession and may, in general, be enforced in the same way as any other equitable charge, namely, by sale in pursuance of court order or, where the lien is over a fund, by an order for payment thereout.
[44](1983) 149 CLR 639.
[45]Supra at 663.
Deane J in Hewett v Court,[46] also laid down the conditions sufficient, although not necessary, for the implication of an equitable lien:[47]
(1)there must be an actual or potential indebtedness on the part of the property owner to the other party arising from a payment or promise of payment, either of consideration in relation to the acquisition of the property, or of an expense incurred in relation to the property;
(2)the property (or, arguably, property including the property) must be specifically identified and appropriated to the performance of the contract; and
(3)the relationship between the actual or potential indebtedness and the identified and appropriated property must be such that the owner would be acting unconscionably or unfairly if the owner were to dispose of that property (or, if it is appropriate, more than a particular portion of the property) to a stranger, without the consent of the other party, or without the actual or potential liability having been discharged.
Deane J’s test for the imposition of an equitable lien was recently confirmed by the WA Court of Appeal in Coad v Wellness Pursuit Pty Ltd.[48]
[46](1983) 149 CLR 639.
[47](1983) 149 CLR 639, 668; see too Halsbury’s Laws of Australia, Mortgages and Securities, Security Interests in General Law Land, Types of Security Interests, par. [295-2075].
[48][2009] WASCA 68 at [41]–[45].
In the present case, it was submitted that each of the three elements were present:
(1)Francesco Bonarrigo advanced $184,800 to Rosa Safaro and Simon Safaro in March 2002 (and a further $11,200 in October 2002), which was used by them to acquire (and service the debt on) the Sydney Road Property;
(2)The property in question is clearly identifiable, being the Sydney Road Property;
(3)In all the circumstances of this case, including Mr Bonarrigo’s age, financial position, his relationship to the borrowers, his education and understanding of the transaction in question, and the discussions which he had with Rosa Safaro and Simon Safaro in 2002, it was submitted that the Court should find that it would have been unconscionable for the Safaros to have sold the property at any time without repaying Mr Bonarrigo out of whatever proceeds of sale became available.
Although I accept that the rules governing the circumstances in which equity has considered that justice requires the recognition of the existence of a lien are not confined to any particular narrow group of categories, and indeed is not a closed list, [49], I am not satisfied that the provision of loan moneys to Rosa Safaro and Simon Safaro for the purpose of the acquisition and subsequent refinancing of the Sydney Road Property was expenditure in relation to the relevant property in the sense contemplated by Bowen LJ in Falcke, or by Deane J in Hewett v Court. The moneys advanced by Mr Bonarrigo in this case were not expended on the Property, they were moneys loaned to Rosa Safaro and Simon Safaro for the purpose of enabling them to acquire and retain the Property.
[49] See Hewett v Court (supra) at 646 per Gibbs CJ
Further, not all of the moneys advanced by Mr Bonarrigo were expended even for these purposes. Turning to the text of the declaration entered into in September 2002, the parties to it agreed, inter alia, that the loan moneys provided by Francesco Bonarrigo to the Safaros were: “For their personal use, including the purchase of” the Sydney Road Property.
Mr Bonarrigo did not gain or retain any interest in the Sydney Road Property as consideration for his advances.
Accordingly, the first of the conditions stated by Deane J in Hewett v Court is not satisfied.
Further, the declaration provided that the money was to be repaid “on or before” the sale of the Sydney Road Property. This leaves open the possibility that the money could be repaid from funds unconnected with the Sydney Road Property. Mr Bonarrigo gave evidence that if Rosa Safaro’s business went well, then the money would be repaid.
Accordingly, in my opinion, the relationship between the actual or potential indebtedness and the Property was severed in two critical respects: (a) not all of the borrowed money was to be applied to the purchase of the Sydney Road Property; and (b) it was contemplated that the loan could be repaid from funds unconnected with the Sydney Road Property. In other words, the Sydney Road Property was not specifically identified as being a source of funds to repay the debt due to Mr Bonarrigo and was not appropriated to the performance of the contract between him and Rosa Safaro and Simon Safaro.
Accordingly, the second of the conditions stated by Deane J in Hewett v Court is not satisfied.
I readily accept the observation of Gibbs CJ in Hewett v Court [50] that the fact that there is no authority precisely on point does not mean that in the present circumstances no lien can arise. As his Honour noted in Hewett: [51]
The rules of equity are not so rigid and inflexible that it is necessary to discover precise authority in favour of the existence of a lien before one can be held to have been created. I do not of course intend to suggest that the courts may proceed on general notions of justice without regard to settled principles.
[50]Supra at 649
[51]Ibid
However, in my opinion, the present case falls outside the settled principles which govern the creation of a proprietary interest in the nature of an equitable lien, and I find that no such interest was conferred on Mr Bonarrigo.
Conclusions
I conclude that:
(a) Simon Safaro is jointly and severally liable to Francesco Bonarrigo for the monies advanced by him to Simon Safaro and Rosa Safaro, secured by mortgage over his Crawley Street Property, both as to the servicing of the loan and the repayment of the capital and sums presently outstanding under the current loan;
(b) Francesco Bonarrigo had no interest, and has no interest, by way of an equitable charge, an equitable lien or any other legal or equitable interest in the Sydney Road Property or in the proceeds of its sale;
(c) Consequently, Francesco Bonarrigo has no present interest in the Common Fund, or any part of it;
(d) The interest of Bella & Associates in the Common Fund is therefore not subordinated to any interest of Francesco Bonarrigo, and it is unnecessary for me to consider any question of priority between their competing claims.
I will therefore dismiss the claim of Francesco Bonarrigo to the Common Fund.
Subject to any further submissions of the parties on the form of the orders which should be made, I propose to make the following orders:
1. The sum of $7,036.78 be first paid to Bella & Associates Pty Ltd from the Common Fund.
2. In proceeding No. 4800 of 2008 one half of the balance of the Common Fund be paid to the plaintiffs, the trustees.
3. In proceeding No. 5740 of 2009 one half of the balance of the Common Fund be paid to the plaintiff, Simon Safaro.
I will hear the parties on the question of costs.
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