Rainford v SA & RT Tesoriero Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S ECI 2023 04784

PHILIP SEPTIMUS ANTHONY RAINFORD	First Plaintiff
CHRISTOPHER SEPTIMUS DAVID RAINFORD	Second Plaintiff
PYLADES PTY LTD (ACN 005 107 782) as trustee for the Rainford Family Trust	Third Plaintiff
and
SA & RT TESORIERO PTY LTD (ACN 092 372 346)	Defendant

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JUDGE:	Waller J
WHERE HELD:	Melbourne
DATE OF HEARING:	17 October 2023
DATE OF RULING:	19 October 2023
CASE MAY BE CITED AS:	Rainford & Ors v SA & RT Tesoriero Pty Ltd
MEDIUM NEUTRAL CITATION:	[2023] VSC 617

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REAL PROPERTY – Caveat – Application to remove caveat pursuant to s 90(3) of the Transfer of Land Act 1958 (Vic) – Where caveator alleged that its interest as mortgagee arose from various security agreements – Whether caveator had shown the existence of a prima facie case – Whether balance of convenience favoured removing the caveat – Caveat removed – Transfer of Land Act 1958 (Vic) s 90(3) .

AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 235 – Piroshenko v Grojsman (2010) 27 VR 489 – 63 Buckley Street Pty Ltd v Keeron Nominees Pty Ltd [2011] VSCA 289 – Carbon Black Lab Pty Ltd v Launer [2015] VSCA 126 – Bradto Pty Ltd v State of Victoria (2006) 15 VR 65 – Yamine v Mazloum [2017] VSC 601 – A. P. Welco Holdings Pty Ltd v Canterbury Hills Pty Ltd [2022] VSC 490 – Wright v Insert Pty Ltd [2022] VSC 1 – Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689 – Lawrence & Hanson Group Pty Ltd v Young [2017] VSCA 172 – Andrews v Wilcox [2008] NSWSC 280.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr I Jones KC and Mr J Leung	Norbury Lawyers
For the Defendant	Mr J O’Sullivan	Etienne Lawyers

Introduction

By originating motion and summons filed on 13 October 2023, the plaintiffs seek an order pursuant to section 90(3) of the Transfer of Land Act 1958 (Act) requiring the defendant to remove caveat AX280672K (Caveat) lodged on the title to the plaintiffs’ property at 118-120 Smith Street, Collingwood, Victoria (Volume 4413 Folio 477) (Property).
The Caveat was lodged by the defendant on 21 September 2023.
The ‘grounds of claim’ stated in the Caveat are ‘Mortgage with the following Parties and Date’. The Parties are described as ‘The Registered Proprietor(s)’ and the Date as ‘02/02/2023’. The ‘estate or interest claimed’ is noted as ‘Interest as Mortgagee’.
The plaintiffs rely on the affidavit of the first plaintiff sworn 15 October 2023 and the documents exhibited thereto from which the following facts emerge.[1]
[1]Affidavit of Philip Septimus Anthony Rainford, 15 October 2023 (‘Rainford Affidavit’) and exhibits to the Rainford Affidavit (‘Rainford Exhibits’), respectively.
The Property is held by the plaintiffs as tenants in common as follows:

(a) the first plaintiff (Philip) as to one of four equal shares;

(b) the second plaintiff (Christopher) as to one of four equal shares;

(c) the third plaintiff (Pylades) as to two of four equal shares.[2]

[2]Rainford Affidavit [6], and Rainford Exhibits 12-13.

Pylades holds its interest in the Property on trust for the Rainford Family Trust in accordance with a deed of settlement dated July 1975.[3]
[3]Rainford Affidavit [7] and Rainford Exhibits 14-35.
The plaintiffs seek removal of the Caveat over the Property, in order to allow settlement of a sale of the Property to a third party, John Politis, to take place on 20 October 2023.
By a Deed of Secured Loan dated 1 February 2023,[4] the defendant loaned $2,860,000 to Workspace Development Project (Westall) Pty Ltd (ACN 657 652 563) (Workspace), an entity previously related to the plaintiffs (being wholly owned by Pylades and Drofniar Developments Pty Ltd (ACN 634 120 488) (Drofniar), another entity related to the plaintiffs, at the time the Deed of Secured Loan was entered into).[5] Repayment was due on 30 May 2023.
[4]Rainford Affidavit [20], [24] and Rainford Exhibits 63-96. Although the copy of the document included with the Rainford Exhibits was dated 1 February 2023, it was suggested by the plaintiffs (and appeared to be common ground among the parties) that the defendant’s counterpart of the document was signed on 2 February 2023.
[5]Rainford Affidavit [14].
Workspace is the registered proprietor of 7 properties at 237-239 Westall Road, Clayton South (Westall Rd Properties).[6] The loan was for the purpose of refinancing the Westall Rd Properties. The defendant required Workspace to provide a first ranking mortgage over each of the Westall Rd Properties as security for the loan. A written mortgage was executed by Workspace on or about 1 February 2023.[7]
[6]Rainford Affidavit [11]-[12].
[7]Rainford Exhibits 97-165.
Clause 9.3 of the Deed of Secured Loan also provided that Philip, Pylades and Drofniar were obliged to ‘execute deeds of guarantee and indemnity in such form as the Lender may require.’[8]
[8]Rainford Exhibits 80-81.
On the same day, 1 February 2023, Philip (on his own behalf and as director and secretary of Workspace) and Christopher (as director of Pylades and Drofniar) signed a General Security Agreement (GSA) [9] and a Guarantee and Indemnity (Guarantee),[10] each dated 1 February 2023. Somewhat curiously, Christopher also added his name and signature to the Deed of Secured Loan, the GSA and the Guarantee, however he is not stated in any of those documents to be a party in his own right.
[9]Rainford Exhibits 188-237.
[10]Rainford Exhibits 166-187.
In March 2023, Pylades and Drofniar sold their shares in Workspace to Brick Lane Advisors Pty Ltd (Brick Lane).[11] Brick Lane had previously acted as broker for the loan from the defendant.[12] The sale required the consent of the defendant, which in turn required a Deed of Variation to the Deed of Secured Loan.[13]
[11]Rainford Affidavit [26]-[27].
[12]Rainford Affidavit [15].
[13]Rainford Affidavit [28] and Rainford Exhibits 238-253.
The Deed of Variation included as parties Workspace, Philip, Christopher, Pylades and Drofniar. Curiously, Christopher is stated to be a party in his own right and described as one of the ‘Initial Guarantors’. The Deed of Variation also includes Brick Lane and Matthew George Eid, Velos Evia Investments Pty Ltd and Anthony George Mirotsos who are named as ‘Additional Guarantors’. Clause 3.1 of the Deed of Variation required further security from the Additional Guarantors.[14]
[14]Rainford Exhibits 244-245.
Following the sale of shares in Workspace in March 2023, the plaintiffs ceased to have any control over Workspace.
It appears that Workspace has since breached its agreement with the defendant and failed to repay the loan.[15]
[15]Rainford Affidavit [31].
On 4 August 2023, the defendant’s solicitors served on Workspace a notice of exercise of power of sale pursuant to s 76 of the Act.[16]
[16]Rainford Exhibits 480-485.
On 4 August 2023, the plaintiffs and John Politis entered into a contract of sale of the Property. The purchase price was $2,622,000 and settlement was due on 20 October 2023.[17]
[17]Rainford Affidavit [30] and Rainford Exhibits 326-479.
On 21 September 2023, the defendant’s solicitors wrote to the plaintiffs’ former solicitor stating:[18]
Pursuant to clause 5.4 of the deed of guarantee and indemnity legal mortgages of over [sic] real property in the name or names of the guarantors jointly and severally. [sic]
Caveats will be placed on title of all land.
Please provide us with title particulars of all land that the guarantors are the registered proprietors of so that mortgage documents can be prepared.
[18]Rainford Affidavit [34].
No title particulars were supplied in response to the email of 21 September 2023.[19]
[19]Rainford Affidavit [35].
On the same day, 21 September 2023, the defendant’s solicitors registered the Caveat on the title of the Property and also on four of five titles comprising 12 Osborne Drive, Mount Martha, in which property the first plaintiff and second plaintiff each have a one third share.[20] As noted earlier, the Caveat purported to rely on a ‘Mortgage’ with ‘The Registered Proprietor(s)’ dated 2 February 2023, claiming an ‘Interest as Mortgagee’.
[20]Rainford Affidavit [36].
On 25 September 2023, the current solicitor for the plaintiffs wrote to the defendant’s solicitor demanding removal of the Caveat from the title of the Property in order to allow the settlement to proceed and stating that Pylades had entered into no mortgage over any land with the defendant.[21]
[21]Rainford Affidavit [38] and Rainford Exhibits 486-688.
The defendant’s solicitor responded by threatening the appointment of receivers and managers over Pylades and otherwise noting that he had instructions to accept service on behalf of the defendant.[22]
[22]Rainford Affidavit [39] and Rainford Exhibits 486.
This proceeding, seeking removal of the Caveat, was commenced on 13 October 2023.
Relevant legislation and legal principles
Section 90(3) of the Act provides that:
Any person who is adversely affected by any such caveat may bring proceedings in a court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit.
The principles governing the determination of an application for the removal of a caveat are well-established. The Court of Appeal in AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd[23] set out the two stage test to be applied, and the nature of the interest necessary to sustain a caveat:
[23][2020] VSCA 235 (‘AE Brighton Holdings’), [25] (Kyrou, Kaye and Sifris JJA).

(a) First, the caveator must establish that there is prima facie case — in the sense that the case has a sufficient likelihood of success to justify the maintenance of the caveat — that he or she has the estate or interest which he or she claims in the land in question. [24]

(b) Secondly, the caveator must establish that the balance of convenience favours the maintenance of the caveat. [25]

[24]Piroshenko v Grojsman (2010) 27 VR 489 (‘Piroshenko’), 491 [7], 494 [21]–[22] (Warren CJ) cited with approval in 63 Buckley Street Pty Ltd v Keeron Nominees Pty Ltd [2011] VSCA 289, [11] (Maxwell P); Carbon Black Lab Pty Ltd v Launer [2015] VSCA 126, [35]–[36] (Santamaria, Ferguson and McLeish JJA); Lawrence & Hanson Group Pty Ltd v Young [2017] VSCA 172 (‘Lawrence’), [36]–[38] (Redlich and Kyrou JJA, Keogh AJA).

[25]Piroshenko (2010) 27 VR 489, 491 [7] (Warren CJ).

Regarding the first stage, only a legal or equitable interest in land can sustain a caveat. An equitable interest in land is a proprietary interest which is recognised by equity but not by the common law. By contrast, a mere equity is not a proprietary interest in land.[26]
[26]AE Brighton Holdings [2020] VSCA 235, [28]-[29] (Kyrou, Kaye and Sifris JJA).
Regarding the second stage, in considering the balance of convenience, the court should take whichever course appears to carry the lower risk of injustice if the court should turn out to be wrong, in the sense of declining to order the summary removal of the caveat where the caveator fails to establish its right at trial, or in ordering the summary removal of the caveat where the registered proprietors fail at trial.[27]
[27]Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, 73 [35] (Maxwell P and Charles JA); Piroshenko (2010) 27 VR 489, 497 [38] (Warren CJ); Yamine v Mazloum [2017] VSC 601, [15] (John Dixon J).
Consistent with the analogy between caveats and interlocutory injunctions, there is a relationship between the strength of the prima facie case and the assessment of the balance of convenience.[28] The stronger the prima facie case, the more readily the balance of convenience might be satisfied. It is sufficient that the caveator show a sufficient likelihood of success that in the circumstances justifies the practical effect which the caveat will have on the ability of the registered proprietor to deal with the land in question in accordance with its normal proprietary rights.[29]
[28]A.P. Welco Holdings Pty Ltd v Canterbury Hills Pty Ltd [2022] VSC 490, [22] (Button J).
[29]Wright v Insert Pty Ltd [2022] VSC 1, [8] (M Osborne J).
Prima Facie Case
In seeking to establish a prima facie case that it has the estate or interest claimed over the Property, the defendant relied on clause 2.1 of the GSA, which provides:
2.1 Creation of Security Interest
Each of the Grantors as beneficial owners charge in favour of the Secured Party, and grants a Security Interest to the Secured Party by way of charge over, the whole of their Collateral and the Proceeds.
‘Collateral’ is defined to include all real property of the Grantor.
‘Security Interest’ in relation to any Collateral other than personal property is defined to mean:
… any mortgage, charge, lien, pledge, hypothecation, bill of sale, title retention arrangement, trust or power, flawed deposit, which is or has the effect of a security for the payment of a debt or other obligation or the compliance with any other obligation, including any security interest under the Personal Property Securities Act.
The difficulty with this submission for the defendant is that clause 2.1 does not create a legal or equitable mortgage interest in favour of the defendant, but a ‘Security Interest … by way of charge’.
Further, to the extent that such interest is granted in favour of the defendant, it is granted by ‘each of the Grantors’ which includes Philip and Pylades, but not Christopher.
A further issue that was debated but need not be resolved was whether the reference to Pylades in the various documents referred to Pylades in its own right or as trustee of the Rainford Family Trust (and therefore whether the charge under the Guarantee applied only to the property held in Pylades’ personal capacity, or included the property held on trust for the Rainford Family Trust, including the Property).
The defendant also relied on clause 5.4 of the Guarantee as a basis for its ‘mortgage’ in respect of the Property. Clause 5.4 relevantly provides:
Upon request in writing by the Lender, the Guarantor shall:
(a)grant to the Lender a legal mortgage of any property (real or personal) now or hereafter held by that person containing a covenant:
(i)That Philip Septimus Anthony Rainford and Pylades Proprietary Limited ACN 005 107 782 and Drofniar Developments Pty Ltd ACN 634 120 488 shall duly pay all monies now or hereafter due and payable to the Lender by them, the Borrower or by any other person named in the Deed or Collateral Document as a Guarantor.
(b)Where property that the Lender requests be given a security by the Guarantor is held jointly by the Guarantor and another person (not a party to this Guarantee), the Guarantor shall:
(i)take such steps including the initiation and completion of court proceedings should same be necessary to effect the registration of a legal mortgage over such jointly held land; or
(ii)in the case of a corporation, as beneficial owner charge in favour of the Lender by way of General Security Agreement, or fixed and floating charge any property now or hereafter held by it, including land and being in the any other case, any property other than personal chattels within the meaning of the Bankruptcy Act, with the payment of the Indebtedness pursuant to this Deed …
The difficulty with this submission for the defendant is that clause 5.4 of the Guarantee does not purport to grant the defendant any interest as at the time of the entry into Guarantee (being on or around 1 February 2023). Rather, it gives the defendant the right to request in writing that a Guarantor grant the defendant ‘a legal mortgage of any property (real or personal) now or hereafter held by that person’ containing a covenant that they ‘shall duly pay all monies now or hereafter due and payable to the defendant’.
As stated by the NSW Court of Appeal in Roberts v Investwell Pty Ltd (in liq),[30] the relevant question as to the characterisation of such a provision is whether the provision confers an immediate right of recourse to the property.[31] If it does, there will be an equitable charge or mortgage. However, if the provision is contingent upon further acts of the parties, such as a requirement that the lender make a written request for such a security to be provided by the borrower, then the provision will not give rise to a security interest.
[30](2012) 88 ACSR 689 (‘Roberts’).
[31]Roberts (2012) 88 ACSR 689, 697-698 [29]-[32] (Bathurst CJ, Beazley JA and Tobias AJA).
Clause 5.4 requires the defendant to make a written request for a mortgage as a condition precedent to the creation of any legal or equitable interest. The defendant, by its solicitor, Mr Brown, has not in terms made such a request. The email of Mr Brown of 21 September 2023 asks only for title details of properties held by Philip, Christopher, Pylades (as trustee of the Rainford Family Trust) and Drofniar. As such, at present the defendant can have no mortgage interest (legal or equitable) in the Property.
A further difficulty for the defendant is that Christopher is not a named party to the Guarantee, yet, as set out above, the Caveat purports to rely on a ‘Mortgage’ with ‘The Registered Proprietor(s)’ dated 2 February 2023, and does not purport to treat Christopher’s interest separately from the other Registered Proprietors (being Philip and Pylades).
In Lawrence, the Court of Appeal stated that ‘a caveat may only be lodged in a form commensurate to the interest it is designed to protect’.[32]
[32]Lawrence [2017] VSCA 172, [39] (Redlich and Kyrou JJA and Keogh AJA), quoting Piroshenko (2010) 27 VR 489, 498 [40] (Warren CJ).
Unlike in that case, the defendant here did not draft the Caveat so as to limit its operation to the interest that could be said to have arisen between the relevant parties.[33] Rather, the Caveat plainly encompasses Christopher’s interest in the Property, which could not have been caught by the Guarantee.
[33]Lawrence [2017] VSCA 172, [96]. See also Andrews v Wilcox [2008] NSWSC 280, where Hammerschlag J ordered a caveat be withdrawn because on its face the caveat in question extended to affect a dealing by a joint proprietor who had not given an equitable mortgage.
The defendant also relied on the Deed of Variation, and in particular the fact that Christopher is named as a Guarantor and Obligor under that deed, and that the definition of Securities includes a ‘General Security Interest’ over all property granted by Philip, Christopher and Pylades as trustee for the Rainford Family Trust. However, the Deed of Variation does not itself create a mortgage over the Property, let alone a mortgage of the kind referred to in the Caveat being a ‘Mortgage’ with ‘The Registered Proprietor(s)’ dated 2 February 2023.
For these reasons, the defendant has not established that there is prima facie case that it has the estate or interest which it claims in the Property.
Balance of convenience
As the defendant has not established a prima facie case that it has the interest claimed in the Caveat, it is not necessary for me to address the balance of convenience. However, I will do so briefly.
The plaintiffs submit that the balance of convenience favours the removal of the Caveat.
They rely on the fact that, prior to the Caveat being lodged, the Property had been sold to a third party, Mr Politis, who has paid the deposit required by the sale contract and therefore has an equitable interest in the Property. Settlement is due to occur on 20 October 2023.
The plaintiffs submit that if they are unable to settle the sale of the Property to Mr Politis, they will be liable for damages for breach of contract and may face a notice of rescission being issued under the sale contract. Mr Politis will, in turn, be deprived of his proprietary rights in the Property.

Further, Philip has given evidence that his family, his family’s businesses and the payment of a number of debts (including a debt of over $100,000 to the State Revenue Office) are dependent upon the proceeds of sale.[34]
[34]Rainford Affidavit [40].
The plaintiffs further submit that even if the Caveat is removed, the defendant still has:

(a) security over the Westall Rd Properties which have a value of between $3.8 million to $4.8 million;

(b) avenues of potential security against Philip’s assets, which include:

(i) a third share in a property at 12 Osborne Drive, Mount Martha (the unimproved value of which (for land tax purposes) is $5,200,000). That property is unencumbered;

(ii) a property at 644 Murray Road, Preston (which appears to have available equity of approximately $200,000); and

(iii) a property at 19 Grainger Circuit, Melba, ACT (which appears to have available equity of approximately $450,000). That property is owned by Lifeplan Management Services Pty Ltd, a company wholly owned by Philip; and

(c) avenues of potential security against the assets of the named Additional Guarantors under the Deed of Variation, which include a property at 66 Kellys Lane, Kilmore owned by Velos Evia Investments Pty Ltd which appears to have a value of about $659,919.

The defendant adduced no evidence going to the balance of convenience.
The defendant submitted that ‘the third plaintiff seems unable to pay its debt as and when they fall due and is insolvent’,[35] so the proceeding should be being conducted, if at all, by a trustee in bankruptcy or an administrator or a liquidator of the third plaintiff. The defendant further submitted that even if the Caveat were removed it could file a fresh caveat or appoint a receiver to the third plaintiff.
[35]Transcript of Proceedings, 17 October 2023, 46:26-28.
The defendant also pointed to the first plaintiff’s evidence that the plaintiffs intends to dissipate the proceeds of sale to pay various debts as tilting the balance of convenience in the defendant’s favour.
Finally the defendant submitted that any damage to Mr Politis would be ‘readily ameliorated by the making of an order that the proceeds of sale be paid into court or into a controlled money account, so that the claimants can then have a fight about priorities’.[36]
[36]Transcript of Proceedings, 17 October 2023, 60:8-12.
That submission, however, is inconsistent with the defendant’s primary submission that the Caveat ought be maintained, which would prevent the settlement taking place and title to the Property being transferred to Mr Politis.
Even if I had formed the view that the defendant had established a prima facie case that it had a caveatable interest, I would not have formed the view that the defendant had established that the balance of convenience favours the maintenance of the Caveat.
Disposition
I will order, pursuant to s 90(3) of the Act, that the Caveat be removed.
Costs
At a hearing on 18 October 2023 I delivered these reasons orally and made orders giving effect to paragraph 56. I gave the parties an opportunity to make submissions on costs, and made an order that the defendant pay the plaintiffs’ costs of the application on the standard basis.

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[2023] VSC 617

19 October 2023