Roberts Gray Pty Ltd v Brunner

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

PROPERTY LIST

S ECI 2019 00022

ROBERTS GRAY PTY LTD (ABN 73 610 258 127) TRADING AS ROBERTS GRAY LAWYERS	Plaintiff
v
BRUNNER, MARK JONATHAN IRVING	First Defendant
REGISTRAR OF TITLES	Second Defendant
JAMES KELLAM	Third Defendant
P.G. WALTON INVESTMENTS PTY LTD (ABN 70 079 0328 251)	Fourth Defendant

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JUDGE:	Daly AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	12 & 13 May 2020
DATE OF JUDGMENT:	9 March 2021
CASE MAY BE CITED AS:	Roberts Gray Pty Ltd v Brunner & Ors
MEDIUM NEUTRAL CITATION:	[2021] VSC 76

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EQUITY – Equitable interests – Priority between prior unregistered mortgage and subsequent equitable charge – Whether the plaintiff had notice of the prior equitable interest – Whether notice of prior equitable interest is fatal to the plaintiff’s claim for priority – Whether prior interest holder engaged in conduct which would disentitle him from claiming priority – Heid v Reliance Finance Corporation (1983) 154 CLR 326; Moffett v Dillon [1999] 2 VR 480, applied – Subrogation – Whether the third defendant is entitled to be subrogated to a prior registered mortgage – Whether plaintiff should be permitted to amend caveat – Percy & Michele Pty Ltd v Gangemi [2010] VSC 530, referred to – Whether trustee should be appointed for the sale of land – Transfer of Land Act 1958 (Vic) ss 77, 90(2), 90(3), 103 and 118.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr MGR Gronow QC with Mr AM Christophersen	Roberts Gray Lawyers
For the Third Defendant	Mr B Harding	Diamonds Solicitors

HER HONOUR:

Introduction & Background

The plaintiff, Roberts Gray Pty Ltd (‘Roberts Gray’), is a firm of solicitors. Its principal is Mr Rhys Roberts. The first defendant, Mr Mark (‘Jon’) Brunner, is a former client of Roberts Gray. Mr Brunner, a businessman, was declared bankrupt on 20 February 2020. This proceeding concerns the priorities to be afforded to certain secured creditors of Mr Brunner with respect to their claims to a property owned by Mr Brunner at 580 Yandoit Creek Road, Franklinford (‘land’), a disused mining site near Daylesford, Victoria.

A number of parties claim a security interest in the land, the value of which is uncertain, but is unlikely to far exceed $300,000.00. Roberts Gray claims an interest as chargee, pursuant to a charge in its favour executed by Mr Brunner on 5 July 2018 (‘charge’) to secure outstanding legal fees and disbursements incurred by him with respect to various legal proceedings between 2016 and 2018. Those proceedings include a proceeding between him and his former partner in the Family Court of Australia (‘Family Court proceeding’), a dispute with the Australian Taxation Office (‘ATO’), and a proceeding in relation to a failed property transaction in this Court. The third defendant, Mr James Kellam, an associate of Mr Brunner, claims to be entitled to register a mortgage said to have been executed in his favour by Mr Brunner on 26 September 2017 (‘Kellam mortgage’). Mr Kellam claims to have stepped into the shoes of the fourth defendant, the original mortgagee, P.G. Walton Pty Ltd (‘PG Walton’). PG Walton registered its mortgage (‘PG Walton mortgage’) on 11 April 2017 in order to secure a short term advance to Mr Brunner.

Earlier, on 27 May 2016, a company of which Mr Brunner was the director, Vesterdix Group Holdings Pty Ltd (‘Vesterdix’), entered into a rental agreement with TL Rentals Pty Ltd[1] (‘TL Rentals’) in relation to an aircraft and associated goods (‘rental agreement’). Pursuant to the rental agreement, Mr Brunner provided a guarantee and indemnity in relation to the rental agreement. Clause 3.1 of the guarantee provided as follows:

As security for the guarantor’s obligations under clause 2, the guarantor:
(a)hereby mortgages in favour of the owner all the guarantor’s future right title and interest in:
(i) the real property described above as Security Property;
(ii)any other real property that the guarantor owns or holds an interest in as at the date of this guarantee.

[1]Now known as TL Commercial Finance Pty Ltd.

On 30 March 2017, TL Rentals lodged caveat number AN697746T over the land (‘TL Rentals caveat’).

On 23 October 2017, Vesterdix failed to pay arrears of $14,573.35, and TL Rentals terminated the rental agreement. TL Rentals now claims to be owed the sum of $96,129.01 pursuant to the rental agreement.

As noted above, Roberts Gray acted for Mr Brunner in the Family Court proceeding. In the early part of 2018, Mr Brunner was required to comply with orders in the Family Court proceeding to disclose his financial position (‘disclosure obligations’). Mr Brunner’s attempts to comply with the disclosure obligations were complicated by his rather complex financial situation, in that he was operating a number of businesses through a number of entities, he was in dispute with the ATO and others, and he was the beneficiary of a discretionary trust and the estate of his late father. Further complicating matters was the fact that Mr Brunner was unable to provide funds to Roberts Gray to meet legal fees incurred to date and anticipated legal costs. These difficulties led to Mr Roberts demanding that Mr Brunner execute the charge in lieu of placing funds in trust for the purpose of conducting the trial of the Family Court proceeding.

Mr Brunner and Roberts Gray enlisted the assistance of Mr Stephen Mooney, an accountant, for the purpose of complying with the disclosure obligations. On 11 May 2018, Mr Brunner emailed a draft financial statement to Mr Roberts (‘draft financial statement’), which was prepared with the assistance of Mr Mooney. Clause 23 of Part G of the draft financial statement, headed “Personal expenditure”, and Clause 47 of Part K, headed “Your liabilities” provided as follows:

Other mortgage payments
NAME OF LENDER
J Kellam
ADDRESS OF PROPERTY
Yandoit Creek Rd Franklinford 3461
AVERAGE WEEKLY AMOUNT
$360
Other mortgages
FULL NAMES OF ALL BORROWERS
Jon Brunner
YOUR SHARE
100%
AMOUNT OF YOUR SHARE
$200,000.

However, Mr Kellam was not listed as a creditor in the section headed ‘Liabilities’, either as a mortgagee or as an unsecured creditor.

The trial of the Family Court proceeding was scheduled to commence on 6 July 2018. However, Mr Brunner had not yet complied with the disclosure obligations, and Roberts Gray was becoming increasingly concerned about its unpaid legal fees, given the need to prepare for trial and brief counsel for the trial.

On 29 June 2018, Roberts Gray sent an email to Mr Brunner attaching an updated cost disclosure agreement, a draft notice of ceasing to act, and a draft agreement to charge the land.

On 5 July 2018, Mr Brunner executed the charge, which provided as follows:

IN CONSIDERATION of Roberts Gray Pty Ltd providing me with legal services from time to time:
I, Mark Jonathan Irving Brunner, of 1B Wordsworth Street, St Kilda, in the State of Victoria, HEREBY CHARGE in favour of Roberts Gray Pty Ltd all land owned by me, in my own capacity and as trustee of any trust, now or in future as security for the due and punctual payment of all professional fees and disbursements now owing or at any time may be owing by me to Roberts Gray Pty Ltd for legal services provided to me.
I ACKNOWLEDGE that I have had the opportunity of obtaining independent legal advice as to the nature and legal effect of this agreement prior to entering into this agreement and that I enter into this agreement willingly fully understanding the nature and legal effect of this agreement.

Initially, Mr Brunner asserted that his execution of the charge was procured by duress on the part of Roberts Gray. Further, he queried the quantum of the fees charged by Roberts Gray, and the allocation of legal costs between different legal proceedings in which Roberts Gray were acting for him or his associated entities. However, no action was taken by Mr Brunner to tax the legal costs, and, given that at the time of trial, Mr Brunner, being bankrupt, was not an active party to the proceeding, the allegation of duress (which, on its face, appeared to have limited prospects of success) was not pressed. Roberts Gray, in turn, has conceded that the charge is ineffective to the extent that it seeks an equitable interest in properties not legally and beneficially owned by Mr Brunner, that is, any property other than the land.

Returning now to the Family Court proceeding, the trial scheduled for 6 July 2018 was vacated owing to Mr Brunner’s failure to comply with the disclosure obligations. Roberts Gray continued to work with Mr Brunner and Mr Mooney to finalise the financial statement, which was executed by Mr Brunner on 20 July 2018. Relevantly, for present purposes, the financial statement filed with the Family Court on 20 July 2018 (‘sworn financial statement’) was in substantially similar, but not identical, terms to the draft financial statement sent to Mr Roberts on 11 May 2018. The reference to the payment of $360.00 per week to Mr Kellam remained. However, under the heading ‘other mortgages’, reference was made to the following:

Jon Brunner borrowed against Yandoit and 308/6 Victoria Street the sum of $600,000.

No such reference was made in the draft financial statement, which referred to a sum of $200,000.00 being owed to mortgagees, without specifying any security property, although the land was referred to in the context of the $360.00 weekly payment to Mr Kellam.

There is conflicting evidence about the amount said to be owed by Mr Brunner to Mr Kellam and secured by the Kellam mortgage. In evidence is a letter from Lander & Rogers, the solicitors for Mr Brunner’s former partner in the Family Court proceeding dated 25 August 2017, which annexed a loan agreement between Mr Brunner and Mr Kellam dated 23 June 2017 for the sum of $30,000.00 (‘June 2017 agreement’). However, Mr Mooney gave evidence that he told Mr Roberts that Mr Brunner owed Mr Kellam more than $250,000.00. There is no direct evidence from either Mr Brunner or Mr Kellam as to the sums advanced by Mr Kellam and secured by the Kellam mortgage. However, in a letter from Diamonds Solicitors to SLF of 9 January 2019 (the factual assertions in which Mr Brunner deposed to as being correct), Diamonds Solicitors stated that the balance of the loan secured by the PG Walton mortgage at the time it was paid out by Mr Kellam was $188,065.60.

The evidence before me does not explain what occurred in the Family Court proceeding after the filing of the financial statement on 20 July 2018, but the latest of the invoices was issued on 17 August 2018, and Roberts Gray ceased to act for Mr Brunner not long afterwards.

On 30 August 2018, Roberts Gray lodged caveat number AR404472L (‘caveat’), claiming an interest in the land as chargee pursuant to an agreement with Mr Brunner, J. B. & F. Investments Pty Ltd (‘JB & F Investments’), and Vesterdix and forbidding the registration of any instrument affecting the equitable interest claimed in the caveat.[2]
[2]The caveat also purported to register an interest in the other properties, despite Mr Brunner not being the registered proprietor of any of the other properties in his own right, being Land Title References: 9512/842, 10947/103, 10947/104, 10947/119 and 10947/122 (collectively, the ‘other properties’).

On 10 December 2018, Mr Kellam, or someone on his behalf, lodged with the Registrar of Titles the Kellam mortgage, which on its face was executed on 26 September 2017. The Kellam mortgage is an “all moneys” mortgage, in that Mr Brunner promised:

… to pay to the mortgagee on demand all moneys owing by the mortgagor to the mortgagee including the moneys under a loan agreement between the parties executed on the same day as this mortgage.

Notwithstanding the above, there is no loan agreement between Mr Brunner and Mr Kellam in evidence, or any other document purporting to evidence such an agreement, other than the June 2017 agreement.

The current proceeding

On 13 December 2018, the Registrar of Titles sent a notice to Roberts Gray to the effect that the Kellam mortgage had been lodged for registration pursuant to s 90(1) of the Transfer of Land Act 1958 (Vic) (‘TLA’).

On 7 January 2019, Roberts Gray commenced this proceeding, seeking the following relief:

1.Pursuant to rule 45.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules), an order that the requirements of Rules 5.03(1) and 8.02 in relation to appearance are dispensed with and the Plaintiff is authorised to commence the proceeding by Originating Motion in Form 5C;
2.Pursuant to section 90(2) of the Transfer of Land Act 1958 (Vic):
(a)an order directing the Second Defendant to delay registering Mortgage number AR742544Y (Mortgage) lodged by the Third Defendant on 10 December 2018 against the whole of the land described in Certificate of Title Volume 11641 Folio 381 situated at and known as 580 Yandoit Creek Road, Franklinford in the State of Victoria (land) until further order;
(b)an order that the Plaintiff has leave to amend the Grounds of claim in Caveat number AR404472L lodged on 20 August 2018 by deleting the following parties:
(i)J. B. & F. Investments Pty Ltd ACN 161 485 614;
(ii)J. B. & F. Investments Pty Ltd ACN 161 485 614;
(iii)Vesterdix Group Holdings Pty Ltd ACN 610 736 948;

3.Further or in the alternative, an order that the Second Defendant is restrained from registering the mortgage lodged by the Third Defendant on 10 December 2018 against the Land until further order;
4.A declaration that the Plaintiff holds an equitable charge over the Land pursuant to a written agreement dated 28 June 2018 signed by the First Defendant on 5 July 2018;
5.Pursuant to the Court’s inherent jurisdiction, an order that the Land be sold by the Plaintiff subject to the supervision of the Court;
6.Further or in the alternative, pursuant to section 91(2) of the Property Law Act 1958 (Vic) (PLA), an order that the Land be sold by the Plaintiff;
7.An order that the Plaintiff recover possession of the Land;
8.Orders that:
(a)the sale of the Land be conducted by public auction;
(b)the Plaintiff is authorised to engage a qualified real estate agent to advertise the Land for sale by auction and conduct the auction;
(c)the Plaintiff is at liberty to sell the Land by private treaty prior to the action;
(d)the proceeds of the sale of the Land be applied by the Plaintiff as follows:
(i)firstly, in payment of all costs, charges and expenses properly incurred by the Plaintiff as incident to the sale, any attempted sale or otherwise of the Land including any agent’s commission, advertising expenses and reasonable legal fees and disbursements of and incidental to the conveyance of the Land by the Plaintiff to a purchaser(s);
(ii)secondly, in payment of the amount to discharge registered Mortgage number AN734916G;

(e)the net proceeds of the sale of the Land, if any, be paid into the Court in these proceedings;
(f)for the purposes of carrying out the sale of the Land:
(i)the Land vests in the Plaintiff;
(ii)the Plaintiff has power to sign all documents and do all things necessary to transfer the Land and all the interest of the First Defendant in the Land to a purchaser(s);
Subject to any prior registered encumbrance;

9.An order that the First Defendant pay the costs of the Plaintiff of these proceedings;
10.Such further or other order as the Court deems meet.

At the trial of the proceeding, Roberts Gray pressed substantially the same relief as sought in the originating motion, save that in place of the orders sought at paragraphs 5 to 8 of the originating motion, Roberts Gray submitted that the Court should appoint Mr Brunner’s trustee in bankruptcy (‘trustee’) to sell the property and account to Mr Brunner’s secured creditors in accordance with the priorities determined at trial, the trustee having confirmed his willingness to accept the appointment.

Shortly after the issue of the proceeding in January 2019, the parties engaged in a flurry of correspondence, as set out in the following paragraphs.

Mr Brunner was served with the originating motion and supporting documents on 8 or 9 January 2019. On 9 January 2019, Diamonds Solicitors sent a letter to the former solicitors for Roberts Gray (‘SLF Lawyers’), which confirmed that he acted for Mr Kellam, sought an adjournment of the hearing scheduled for 10 January 2019, and responded to Roberts Gray’s claims in the originating motion as follows:

… Mr Roberts does not depose that the plaintiff gained its interest as chargee in the land without notice of the prior interests (including that of Mr Kellam) affecting the land. Mr Roberts would be unable to do so, if for no other reason than that he acted for Mr Brunner in contested Family Court property proceedings. In doing so he actively assisted in the preparation of Mr Brunner’s statement of financial position and gained intimate knowledge of Mr Brunner’s affairs, including with respect to the land. The fact that Mr Roberts deposes that the plaintiff will “lose equity” in the land (which in any event as explained later, it won’t) is not a proper basis to delay registration of Mr Kellam’s mortgage.

The letter went on to address Mr Brunner’s claims of duress and overcharging on the part of Roberts Gray, and asserted that the caveat was defective, and should not be amended. The letter then went on to say as follows:

If it becomes necessary, Mr Kellam and/or Mr Brunner will file affidavits verifying the facts underlying the observations made above and contradicting Mr Roberts’ evidence in a number of respects including:
(a)The address of the land is not 580 Yandoit Creek Road, Franklinford, but is generally known as Crown Allotment 13M Sec 2 & Crown Allotment M1 Yandoit Creek Road, Franklinford. It has a mining camp comprising temporary sheds, storage containers and sleeping quarter. It is not the property the subject of exhibit F and does not include a dwelling build (sic) in 2009. As Mr Roberts would be aware, it is listed as having a value of $300,000.00 in Mr Brunner’s Statement of Affairs. It was purchased for $285,000.00 in late 2015.
(b)As to the “PG Walton debt”, Mr Roberts should be aware (for the reasons previously outlined) that Mr Kellam provided financial accommodation to Mr Brunner originally by an advance of $30,000.00 in June 2017 and subsequently provided further accommodation in August 2017 by acquiring the debt and first mortgage security AN734016Q held by PG Walton Investments Pty Ltd, and providing a further advance. At the time the PG Walton debt was acquired by Mr Kellam it stood at $188,065.50. At the lower rate of interest provided for in the mortgage, the debt now exceeds $300,000.00. Mr Kellam holds his registrable mortgage AR742544Y the subject of the proceedings and a lien over the PG Walton securities (including the Certificate of Title) to secure all the funds owing to him.
(c)TL Rentals Pty Ltd has entered a caveat no AN697746T on the land well prior to the entry of the Plaintiff’s caveat. This is readily apparent from the exhibits. TL Rentals is claiming a sum in the order of $140,000.00 under its guarantee and charge following the repossession and sale of the Piper Aztec aircraft it leased to Mr Brunner’s company. Given the nature of the Orders being sought, TL Rentals ought to be made a party if the matter is to proceed.
(d)Under all of the circumstances, there does not appear to be any equity available in the land for the Plaintiff.

The proceeding was originally returnable in the Practice Court before Sifris J on 10 January 2019, following which his Honour made the following orders:

Pursuant to section 90(2) of the Transfer of Land Act 1958 (Vic), the Second Defendant delay registering Mortgage number AR742544Y lodged by the Third Defendant on 10 December 2018 against the whole of the land described in Certificate of Title Volume 11641 Folio 381 situated and known s 580 Yandoit Creek Road, Franklinford, in the State of Victoria until 4:00pm on Thursday, 28 February 2019.

On 15 January 2019, SLF Lawyers sent a letter to the solicitors for PG Walton, Summer Lawyers, which provided, in part, as follows:

We confirm the following:
1your office couriered the paper Discharge of Mortgage of Charge to discharge the Land from the moneys secured by Mortgage number AN734016G (Mortgage) and the paper Certificate of Title to Diamonds Solicitors in or about August 2017.
2your office is prepared to sign and lodge a Discharge of Mortgage of Charge electronically, on behalf of your client, for registration to discharge the Land from the moneys secured by the mortgage if our office invites your office to participate in a PEXA Workspace.
We would appreciate if you could furnish our office with copies of:
1the paper Discharge of Mortgage or Charge and the paper Certificate of Title your office couriered to Diamonds Solicitors in or About August 2017;
2the letter from your office to Diamonds Solicitors enclosing the paper Discharge of Mortgage or Charge and the paper Certificate of Title.

On 23 January 2019, Summer Lawyers sent an email to SLF Lawyers and Diamonds Solicitors, which provided as follows (omitting formal parts):

We note that Diamond Lawyers is seeking a transfer of mortgage on behalf of the Borrower (Vesterdix Group Holdings Pty Ltd) and SLF Lawyers is requesting a discharge of mortgage on behalf of Roberts Gray Pty Ltd.
We note that we hold instructions to provide a PEXA discharge of mortgage AN734016G on behalf of P.G. Walton Investments Pty Ltd, if a PEXA invitation is sent to our office and the Certificate of title Volume 11641 Folio 381 is nominated in the same PEXA workspace.
As communicated to both parties, our office did courier to Diamond Lawyers the following discharge documents on 6 October 2017 (copy of our letter is attached):
1.        Certificate of Title Volume 11641 Folio 381;
2.        Discharge of Mortgage AN734016G; and
3.        Withdrawal of Caveat AN641771K.
We have reviewed our file and note that except for a file note (as per attached and dated 6 October 2017) on the matter, we unfortunately do not have a copy of the documents that were sent out in courier on same date. As such, we are unable to provide an electronic copy of the couriered documents for your reference and do apologies (sic) for any inconvenience caused.
Bruce,
Please confirm that Diamond Lawyers did receive the Certificate of Title Volume 11641 Folio 381 from our office and is currently in possession of same.
Further, please liaise with each other and confirm with our office what your respective clients are seeking from our office, in order for our office to be in a position to seek instructions from our client (if the request is going to be different to providing a discharge of mortgage via PEXA).

On 23 January 2019, Diamonds Solicitors sent an email to Summer Lawyers, which provided as follows:

Dear Yulia,
For the avoidance of any doubt, there is to be NO DISCHARGE OF MORTGAGE IS TO BE PROVIDED (sic). JAMES KELLAM HOLDS THE EXISTING DOCUMENTS UNREGISTERED. He is the beneficial owner of debt and the security and entitled to a transfer. Jon Brunner will confirm this if he has not done so already.
SJF Lawyers (sic) have no standing whatsoever to request a discharge. Please provide me with a copy of any correspondence you have received from them.

On 20 February 2019, Sifris J made further orders, including the following order:

Pursuant to section 90(2) of the Transfer of Land Act 1958 (Vic), the Second Defendant delay registering Mortgage number AR742544Y lodged by the Third Defendant on 10 December 2018 against the whole of the land described in Certificate of Title Volume 11641 Folio 381 situated and known s 580 Yandoit Creek Road, Franklinford, in the State of Victoria until the hearing and determination of the proceeding or further order.

After the hearing on 20 February 2019, the proceeding was set down for trial to commence on 12 May 2020. The parties filed affidavits in March and April 2019 pursuant to the orders made by Sifris J on 20 February 2019, but nothing more of note took place in 2019. While in January 2019 Roberts Gray caused subpoenas to be issued directed at Mr Kellam and Summer Lawyers, there were no orders made for discovery. While discovery is not ordinarily available in proceedings commenced by originating motion, one would expect that discovery may have been a useful forensic exercise in this proceeding.

On 20 February 2020, pursuant to orders made by the Federal Circuit Court of Australia, Mr Brunner was declared bankrupt on the petition of parties to the proceeding in this Court referred to in paragraph 2 of these reasons.

On 25 February 2020, the trustee sent a letter to Roberts Gray, stating that Mr Brunner was the registered proprietor of a property in St Kilda, and sought information regarding the debt owed to Roberts Gray and the basis upon which Roberts Gray claimed an equitable interest in that property.

On 10 March 2020, Roberts Gray sent a letter to the trustee advising him of the amount of $85,832.02 plus interest owed by Mr Brunner to Roberts Gray in respect of unpaid legal costs and disbursements.

On 29 April 2020, Roberts Gray sent a letter to TL Rentals advising it of the present proceeding, and requesting advice as to its position regarding the orders sought by Roberts Gray. A letter in similar terms was sent by Diamonds Solicitors to TL Rentals on 4 May 2020.

On 6 and 7 May 2020, Roberts Gray and Diamonds Solicitors corresponded with the trustee and his solicitors, HWL Ebsworth. The trustee confirmed that he did not intend to defend Roberts Gray’s application in this proceeding, or otherwise participate in the proceeding, on the basis of Mr Brunner’s representation to the effect that there would be no equity in the land after the secured creditors had been paid out.

On 7 May 2020, Mr Philip McLeod of the COG Group[3] sent an email to Diamonds Solicitors, as follows:
[3]TL Rentals (now TL Commercial Finance) is a wholly owned subsidiary of the COG Group.

Dear Bruce,
Further to our telephone discussion yesterday in relation to background and status of the Victorian Supreme Court proceedings (2019/22), I confirm the position of TL Commercial Finance Pty Ltd (previously called TL Rentals Pty Ltd) is as follows:
1.We understand your client (James Kellam) paid out the existing mortgagee (P.G. Walton Investments Pty Ltd) and entered into a mortgage on 26/9/2017 over the property owned by Mark Brunner. This mortgage was not registered and the present proceedings relate to an application by Roberts Gray Pty Ltd to prevent the registration and attempt to protect an alleged prior interest over the property.
2.We understand the Roberts Gray claim is based on a charge for legal fees (dated 5/7/2018) and a caveat lodged over the subject property on 30/3/2017.[4] Furthermore it is disputed whether Roberts Gray had a caveatable interest over the property.
3. I note that TL Commercial entered into a rental agreement and a guarantee providing a caveatable interest over the property on 26 May 2016 and lodged its own caveat on 30/3/2017.
4.In our view, any way you look at it, TL Commercial has a superior interest than Roberts Gray over the subject property.
5.On the facts you have related to us, TL Commercial would accept that your client Mr Kellam has a superior right than either party over the subject property, given its unregistered mortgage.
6.TL Commercial would be comfortable with the Court directing the subject property be sold by Mr Kellam as mortgagee in possession following registration of his mortgage and that the net proceeds be held in a solicitor’s trust account pending resolution of the dispute.
7.TL Commercial reserves its right to make a claim over the net proceeds including its right to claim priority over any interest claimed by Roberts Gray.
8.TL Commercial would be happy to participate in a commercial negotiation to determine an appropriate outcome for the distribution of sale proceeds, bearing in the mind the huge expense that the parties will bear in running a case which in our view is fairly straight forward in relation to relative priorities.
9.Finally, we note that Roberts Gray has provide a Court undertaking to pay damages in the event its claim is unsuccessful and parties incur a loss. Clearly the value of the property may have decreased as a result of the delay in sale brought about by these proceedings and the recent downward pressure on property values. This should be kept in mind when the parties are considering how best to resolve this dispute….

[4]This must be a typographical error.

On 8 May 2020, Roberts Gray sent an email to Mr McLeod, as follows:

I refer to your email extracted below from Thursday 7 May 2020 and our conversation earlier today.
We request that you forward documentation evidence the sum that you claim is owing. What is the sum that was lent and when was it lent? What is currently outstanding?

On 8 May 2020, Mr McLeod sent an email to Roberts Gray, as follows:

The amount claimed is $92,129 based on monies owed under the rental agreement for which Mark Brunner was the guarantor and in relation to which the caveat was lodged.
I understand our caveat predates yours and our interest in the property has priority over yours.
We are comfortable that the property be sold and the sale proceeds be held in a solicitor’s trust account pending resolution of this dispute.
If you alleged any priority interest ahead of us, please identify how much you are claiming and the grounds for claiming it including the right creating a caveatable interest on the subject property.

A contract statement report generated by TL Rentals dated 12 May 2020 and tendered in evidence indicates that TL Rentals is owed the sum of $96,129.01.

By the time the trial of the proceeding commenced, the position of the parties was as follows:

(a) the only active parties were Roberts Gray and Mr Kellam;

(b) neither the Registrar of Titles, the trustee, nor the original mortgagee, PG Walton, were taking an active part in the proceeding;

(c) TL Rentals maintained a claim for its debt, and a charge over the land, but was content to abide by the determination of the Court regarding the question of who should sell the land;

(d) all parties agreed that the land should be sold, but were in dispute as to whether the property should be sold by the trustee, or by Mr Kellam as mortgagee in possession;

(e) Roberts Gray and Mr Kellam remained in dispute as to whether Mr Kellam should be permitted to register the Kellam mortgage, and as to which of their interests has priority access to the proceeds of sale of the land; and

(f) Mr Kellam resisted Roberts Gray’s application to amend its caveat.

The evidence

Roberts Gray relied on several affidavits sworn by Mr Roberts. In his affidavit sworn on 7 January 2019, Mr Roberts deposed, largely uncontroversially, as to the factual background to the proceeding.

In Mr Roberts’ affidavit sworn on 8 March 2019, he deposed as to the circumstances in which the charge was executed, which is not relevant for present purposes.

In his affidavit sworn on 7 May 2020, Mr Roberts deposed as to Mr Brunner’s bankruptcy and his subsequent dealings with the trustee.

In his affidavit sworn on 11 May 2020, Mr Roberts deposed, in summary, as follows:

(a) upon further review of the Roberts Gray’s records, Mr Roberts identified a letter to Roberts Gray from Lander & Rogers, which referred to and enclosed a copy of the June 2017 agreement (see paragraph 15 above);

(b) Roberts Gray subsequently received a letter from Lander & Rogers on 2 November 2017 complaining about Mr Brunner’s failure to comply with the disclosure obligations, which also referred to the June 2017 agreement;

(c) at the time the charge was executed, Mr Roberts presumed that the balance of the loan made by Mr Kellam pursuant to the June 2017 agreement had been significantly reduced by Mr Brunner;

(d) on 11 May 2020, Roberts Gray sent an email to TL Rentals seeking confirmation that it does not object to or otherwise seek to participate in this proceeding; and

(e) on 11 May 2020, the General Counsel for TL Rentals sent an email to Roberts Gray confirming that TL Rentals did not object to Roberts Gray’s application proceeding.

Exhibited to Mr Roberts’ affidavit of 11 May 2020 were the following documents:

(a) a copy of the (unsigned) June 2017 agreement, whereby Mr Kellam agreed to lend Mr Brunner the sum of $30,000.00 for a fixed fee of $3,000.00, repayable within two months. This agreement provided for Mr Brunner to charge any freehold land he owned in favour of Mr Kellam; and

(b) a letter from Lander & Rogers (the solicitors for Mr Brunner’s ex‑partner in the Family Court proceeding) to Roberts Gray dated 2 November 2017 which referred to, among other things, the following transactions:

(i) a loan of $165,000.00 made by PG Walton to Vesterdix in or around March 2017, secured by mortgage over the land; and

(ii) the loan of $30,000.00 made by Mr Kellam to Mr Brunner on or about 23 June 2017.

Mr Roberts was required to attend Court for the purpose of cross‑examination.

Mr Roberts gave evidence that he received the draft financial statement from Mr Mooney on 11 May 2018. Mr Roberts said that he knew Mr Kellam had made a short-term loan to Mr Brunner in the amount of $30,000.00 for an eight-week period, (which he described as a “caveat loan”), which he believed had been paid off by Mr Brunner by the time the charge was executed.

When taken to the references in the draft financial statement and the sworn financial statement to weekly payments of $360.00 to Mr Kellam, Mr Roberts said that he believed that this amount was consistent with a loan amount of $30,000.00.

Mr Roberts denied that he was aware that Mr Kellam had an interest in the land prior to the execution of the charge. He did not contact Mr Kellam to enquire about the money owed to him by Mr Brunner prior to executing the charge. At the time leading up to the execution of the charge he believed he had been a victim of dishonesty.[5] However, he would not have executed the charge had he known that the land was encumbered, as his firm and counsel would in effect be working for Mr Brunner for free.
[5]It is unclear whether Mr Roberts was referring here to his dealings with Mr Brunner or his dealings with an unrelated third party.

Mr Roberts denied that Mr Brunner instructed him as to the existence of Mr Kellam’s interest in the land in the course of the Family Court proceeding. He said he was told (it is unclear by whom) that nothing was owing to anyone. He said that Mr Brunner’s financial affairs were so complicated, no-one could understand them.

Mr Roberts gave evidence that he and Ms Serena Vos, a solicitor with Roberts Gray, met with Mr Brunner for an hour prior to the filing of the sworn financial statement to discuss Mr Brunner’s financial affairs, but denied that Mr Brunner told him of the existence of the Kellam mortgage at this meeting. He has never seen any document evidencing a loan by Mr Kellam in any amount other than $30,000.00. However, he believes that the sworn financial statement “loaded up” the land to defeat the interests of Mr Brunner’s ex-partner.

Mr Roberts gave evidence that he had a number of telephone calls and meetings with Mr Mooney, and that he met with Mr Mooney on 20 July 2018 for up to an hour, during which they discussed Mr Brunner’s financial statement. Mr Roberts said that Mr Mooney told him that Mr Brunner owed the sum of $30,000 to Mr Kellam, which was a short-term loan that Mr Brunner had repaid. Mr Roberts denied that Mr Mooney informed him of a mortgage over the land which secured $250,000 plus interest, and stated that if he had known of the Kellam mortgage prior to 5 July 2018 (the date the charge was executed), he would have ceased acting for Mr Brunner, given the amount owed by Mr Brunner to Roberts Gray.

Mr Roberts gave evidence that he did not conduct a title search prior to taking the charge over the land. He did not know whether Ms Vos or SLF Lawyers had conducted a title search on his behalf. Mr Yam of SLF Lawyers was instructed to draft the charge. He did not contact PG Walton or TL Rentals to find out what interest they had in the land before he executed the charge. He has no idea of what he would have found had he made such enquiries. While he accepted that Mr Brunner was not the registered proprietor of the other properties, he considered that they were in fact Mr Brunner’s properties, as they were treated as such for the purposes of the Family Court proceeding.[6]
[6]Given that what might be considered to be part of the asset pool for the purposes of the adjustment of property interests under the Family Law Act 1975 (Cth) would extend beyond assets of which the relevant party was a registered proprietor.

Roberts Gray also sought to rely on several affidavits of Mr Christopher Yam of SLF Lawyers. In his affidavit sworn on 9 January 2019, Mr Yam deposed, in summary, as follows:

(a) on 9 January 2019, Mr Yam received a telephone call from Mr Peter Walton, the director of PG Walton, and Mr Walton told him that:

(iii) the PG Walton mortgage was discharged in full on 16 August 2017;

(iv) there are no moneys owing by Mr Brunner to PG Walton;

(v) PG Walton has no interest in the land;

(vi) PG Walton is represented by Brand Partners;

(vii) if PG Walton has not lodged a discharge of mortgage or charge in Land Use Victoria for registration to discharge the land from the moneys secured by the PG Walton mortgage and PG Walton has paid Brand Partners to do so, Brand Partners would do so; and

(viii) if PG Walton has not paid Brand Partners to lodge a discharge of mortgage, PG Walton would sign a discharge prepared by SLF Lawyers.[7]

[7]While strictly speaking this evidence is hearsay, there is no dispute between the parties that PG Walton has been paid out and no longer has an interest in the land.

In his affidavit sworn on 18 February 2019, Mr Yam deposed, in summary, as follows:

(a) on 15 January 2019, Mr Yam spoke to Adam Cooke of Brand Partners, who informed Mr Yam that PG Walton was represented by Summer Lawyers; and

(b) also on 15 January 2019, Mr Yam spoke with an employee of Land Use Victoria who informed Mr Yam that the Certificate of Title for the land was in the possession of Mr Kellam.[8]

[8]As above. However, it is not clear whether Roberts Gray accepts that when taking possession of these documents, Diamonds Solicitors acted for Mr Kellam, rather than Mr Brunner, as there is some suggestion that Diamonds Solicitors acted for both men.

Mr Yam exhibited to his affidavit the following documents:

(a) a letter from SLF Lawyers to Summer Lawyers dated 15 January 2019, where Mr Yam sought confirmation that it delivered the paper Certificate of Title for the land and discharge of mortgage to Diamonds Solicitors in or about August 2017, and requested copies of those documents and the covering letter to Diamonds Solicitors, and a follow-up letter dated 23 January 2019;

(b) an email from Summer Lawyers to SLF Lawyers and Diamonds Solicitors dated 23 January 2019 informing them that it did not retain copies of the documents couriered to Diamonds Solicitors on 6 October 2017. The covering letter, which was dated 28 August 2017 was attached to the email, but this letter provided no indication of whether Diamonds Solicitors was acting for Mr Brunner, Mr Kellam, or both. The covering letter refers to an email sent by Mr McNab on 9 August 2017, but that email is not in evidence; and

(c) the letter from Diamonds Solicitors to SLF Lawyers dated 23 January 2019 objecting to SLF Lawyers providing a discharge of mortgage with respect to the PG Walton mortgage (see paragraph 29 above).

In a his affidavit sworn on 19 February 2019, Mr Yam deposed as to allegations made by Mr Brunner with respect to the caveat over the St Kilda property, which are not relevant to the current application.

In his affidavit sworn on 20 February 2019, Mr Yam deposed as to various matters concerning Mr Brunner’s allegation that he signed the charge under duress, which again are no longer relevant to the current application.

Mr Yam was not required to attend Court for cross‑examination.

Roberts Gray also relied on an affidavit of Mr Terence Guthridge sworn on 8 March 2019 in relation to the question of whether Mr Brunner executed the charge under duress. Again, it is not necessary to traverse this evidence for the purpose of the current application, and Mr Guthridge was not required to attend Court for cross‑examination.

Mr Kellam relied on two affidavits sworn by Mr Brunner.[9] In his first affidavit sworn on 18 February 2019, Mr Brunner deposed, in summary, as follows:
[9]Some of the evidence in the affidavits relied upon by Mr Kellam was successfully objected to at trial.

(a) where the letter from Diamonds Solicitors to SLF Lawyers dated 9 January 2019 (see paragraphs 24 and 25 above) makes an assertion of fact, that assertion is true;

(b) he had specifically instructed Mr Roberts about Mr Kellam’s interest in the land during the course of the Family Court proceeding;

(c) while the sworn financial statement was filed on 20 July 2018, the information contained in it had been provided to Mr Roberts prior to that date;

(d) Mr Kellam and Mr Brunner intended to keep their arrangements private; and

(e) Mr Kellam had paid the entire debt due under the loan to PG Walton.

In his affidavit sworn on 6 March 2019, Mr Brunner deposed, in summary, as follows:

(a) Mr Brunner sent an email to Mr Roberts enclosing the draft financial statement on 11 May 2018;

(b) following that email, Mr Brunner had meetings with Mr Roberts and Ms Vos to review Mr Brunner’s financial affairs and to complete the sworn financial statement;

(c) the existence of the Kellam mortgage and the debt it secured was discussed at those meetings;

(d) Mr Brunner was and is the sole director of JB & F Investments and Vesterdix, and, contrary to the terms of the caveat, there was no agreement between Roberts Gray and either of those companies; and

(e) the land is a former mining camp on which sits temporary sheds, storage containers and sleeping quarters. The land was purchased for $285,000.00 in late 2015, and Mr Brunner believes its current value is approximately $320,000.00.

Mr Brunner also deposed as to various matters relevant only to the question of whether he was acting under duress when he executed the charge, which do not need to be canvassed further here.

Mr Brunner was required to attend Court for cross‑examination. Mr Brunner gave evidence that Mr Kellam advanced the funds to pay out the debt owed to PG Walton, because the loan had gone into default, and the default interest rates would have been difficult for Mr Brunner to service. Mr Brunner said that the loan from Mr Kellam had more reasonable terms, and his understanding was that Mr Kellam would effectively take over the PG Walton mortgage. He confirmed that he and Mr Kellam had agreed that they should keep their arrangement private. Why they did so was not explored.

Mr Brunner gave evidence that Mr Roberts told him that Roberts Gray would file a notice of ceasing to act if Mr Brunner did not sign the charge. Mr Brunner said that he did not have the money at the time to pay Roberts Gray’s fees and he had no choice other than to sign the charge. Mr Brunner gave evidence that Mr Roberts did not ask him how much equity he had in the land, and that he did not tell Mr Roberts that he in fact had no equity in the land. There was no need to do so, because Mr Roberts prepared Mr Brunner’s financial statements for the purpose of the disclosure obligations, and knew what equity Mr Brunner had in the land.

Mr Brunner gave evidence that the land was owned by him personally, but the other properties referred to in the sworn financial statement were owned by JB & F Investments, which was a discretionary trust of which Mr Brunner was a beneficiary. He said that the information in the sworn financial statement was correct.

Mr Kellam also relied upon an affidavit sworn by him on 18 February 2019. In his affidavit, Mr Kellam deposed, in summary, as follows:

(a) PG Walton, having been paid its debt in full, no longer has any entitlement to deal with the mortgage or the debt; and

(b) Roberts Gray did not contact him at any point prior to 9 January 2019.

Mr Kellam was not required to attend Court for cross‑examination.

Mr Kellam also relied upon an affidavit of Mr Stephen Mooney, sworn on 6 March 2019. In his affidavit, Mr Mooney deposed, in summary, as follows:

(a) he is Mr Brunner’s accountant;

(b) he assisted Mr Brunner to prepare his financial statement for the purpose of the Family Court proceeding. In this course of providing this assistance, he attended Roberts Gray’s offices on about three occasions from in or about May 2018 and met with Mr Roberts and Ms Vos. He went to Mr Roberts’ home, spoke with Mr Roberts on the telephone a number of times, and attended a working dinner with him in Elsternwick;

(c) he is also Mr Kellam’s accountant, and has detailed knowledge of Mr Kellam’s financial affairs. As a result of his knowledge of the financial affairs of both parties, he has a specific recollection of being satisfied that the information in the sworn financial statement was appropriately represented; and

(d) he recalled a specific conversation with Mr Roberts when he told Mr Roberts that the “private client mortgage” over Yandoit secured $250,000.00 plus interest. Typically the mortgage was referred to in Mr Mooney’s many discussions with Mr Roberts as either “Jim’s mortgage”, the “Yandoit mortgage”, or a “private mortgage”.

Mr Mooney was required to attend Court for cross‑examination. He confirmed his evidence that, at the time of the Family Court proceeding, he acted as the accountant for both Mr Brunner and Mr Kellam. He was responsible for preparing Mr Brunner’s tax returns. Mr Mooney stated that he prepared the draft financial statement, and that the sworn financial statement was finalised at a conference he attended with Mr Brunner, Mr Roberts and Ms Vos on or about 20 July 2018.

In cross-examination, Mr Mooney denied that he did not meet with Mr Roberts prior to 20 July 2020, and gave evidence that they had dinner together in Elsternwick, although Mr Mooney could not recall on which date the dinner occurred. Mr Mooney gave evidence that the financial statement was finalised at a meeting with Mr Roberts on 20 July 2018, but that he also had a meeting with Mr Roberts in May 2018, which he believed may have been concerned with Mr Brunner’s dispute with the ATO.

When put to Mr Mooney that Mr Roberts has denied having a conversation with Mr Mooney with regard to the Kellam mortgage, and to the effect that Mr Brunner had obtained a loan from Mr Kellam to Mr Brunner in the amount of $250,000.00 plus interest, Mr Mooney stated that he disagreed with Mr Roberts, as he recalled having a discussion with Mr Roberts about the Kellam mortgage and the loan it secured, but could not recall the date or approximate date of this conversation.

Finally, Mr Kellam relied upon an affidavit sworn by Mr Bruce McNab of Diamonds Solicitors, the solicitors on the record for Mr Kellam in this proceeding on 8 May 2020. Mr McNab deposed as to the correspondence between his firm, TL Rentals, and the trustee in the days leading up to the hearing. Mr McNab was not required to attend Court for cross‑examination.

The issues in the proceeding, some observations on the evidence and the onus of proof

All parties agree that Mr Brunner’s bankruptcy does not preclude either TL Rentals, Roberts Gray, or Mr Kellam, as secured creditors, from recovering the funds advanced by them from the proceeds of the sale of the land. The question of whether the charge was procured by duress has fallen away, such that there is no issue about the validity of the charge, although Mr Kellam contends that the caveat is bad in form and substance. Both parties (and TL Rentals) agree that the land ought to be sold. The dispute is, essentially, who should sell the land, and how the proceeds ought to be distributed.

In that regard:

(a) both Roberts Gray and Mr Kellam agree that the interest of TL Rentals predates that of Roberts Gray;

(b) TL Rentals accepts that, if Mr Kellam makes good its claim to be subrogated to the PG Walton mortgage, Mr Kellam is entitled to have priority over the interest of TL Rentals;

(c) Mr Kellam contends that he is entitled to register the Kellam mortgage, take possession of and sell the property, recover the debt owing to him, and then account to TL Rentals, Roberts Gray, and the trustee for the balance; [10] and

(d) Roberts Gray contends that the trustee should be appointed to sell the land, and then account to TL Rentals, Roberts Gray, Mr Kellam (if he can establish any amount owing to him), and the trustee.

[10]Practically speaking, there is unlikely to be any return to the trustee.

Accordingly, the issues that remain to be determined are:

(a) is Mr Kellam entitled to be subrogated to the PG Walton mortgage?

(b) does Mr Kellam have an enforceable equitable mortgage over the land in registrable form?

(c) if the answer to (b) is “yes”, did Roberts Gray have notice of any such interest of Mr Kellam in the land prior to taking out the charge?

(d) does any such interest of Mr Kellam take priority over Roberts Gray’s interest in the land?

(e) should Roberts Gray be permitted to amend the caveat?

(f) who should be permitted or appointed to sell the land?

Prior to turning to the submissions of the parties, I make the following observations regarding the evidence relied upon by the parties.

First, the evidence needs to be viewed in the context of the procedural history of the proceeding. In particular, the proceeding commenced as an urgent application in the Practice Court, such that the evidence filed in the proceeding included evidence which would be admissible in an interlocutory application, but not at a trial. Accordingly, at the final hearing, Roberts Gray was able to successfully challenge portions of the affidavit evidence of each of Messrs Brunner, Kellam and Mooney. While those objections were substantially meritorious, they were made on the eve of trial, giving Mr Kellam’s legal team limited opportunity to respond, and to adduce further evidence in an admissible form.

As for the oral evidence given by the witnesses at the hearing, Mr Roberts’ evidence was on occasion unsatisfactory, in that direct questions regarding what he knew about Mr Brunner’s financial affairs, and any advances by Mr Kellam to Mr Brunner, were met by evasion, bluster, or invective directed at Mr Brunner in particular. While I do not based my findings on the factual matters in dispute on the demeanour of Mr Roberts alone, his non‑responsive and argumentative answers under cross‑examination were unhelpful to his firm’s cause.

To some extent, Mr Roberts gave contradictory evidence: in particular, his evidence that Mr Brunner told him that he did not owe anyone any money was contradicted by his evidence that Mr Brunner had “loaded up” the equity in his properties to defeat the claims of his former partner in the Family Court proceeding. Further, while Mr Roberts relied upon correspondence from Lander & Rogers to support his contention that he was only on notice of a loan from Mr Kellam to Mr Brunner of some $30,000.00, secured over all land owned by Mr Brunner, that same letter also referred to the loan from PG Walton of some $165,000.00, secured by the land and the St Kilda property. That is, as at November 2017, Mr Roberts was on notice that there was a debt to PG Walton, secured by the land, which was considerably larger than the sum said to have been owed to Mr Kellam at that time.

In contrast, the evidence given by Mr Brunner and Mr Mooney was given calmly, and without apparent evasion or dissembling. However, I do not necessarily accept the submission of counsel for Mr Kellam that these witnesses should be accepted as impartial: after all, Mr Brunner and Mr Kellam must have had some form of association for Mr Kellam to be willing to provide any level of financial accommodation to Mr Brunner through a private channel, and Mr Mooney is the accountant for both men. Further, I accept that the absence of direct or documentary evidence from either Mr Brunner or Mr Kellam regarding the advance from Mr Kellam to Mr Brunner, and the payment of the loan from PG Walton is puzzling, to say the least. However, for reasons which will be elaborated upon later, this evidentiary gap is not necessarily fatal to Mr Kellam’s position in this proceeding.

Finally, on the question of onus: I accept the observations of counsel for Mr Kellam that the evidentiary onus does not rest completely with Roberts Gray, being the plaintiff in the proceeding. While the onus is on Roberts Gray to persuade the Court to make the orders it says ought to be made, and to establish the underlying facts said to give rise to that relief (including its application to amend the caveat), Mr Kellam bears the onus of establishing its entitlement to be subrogated to the rights of PG Walton under the PG Walton mortgage.

Finally, a critical issue in the proceeding is the question of whether Roberts Gray took its charge with notice of any prior equitable interest of Mr Kellam (presuming for present purposes that Mr Kellam’s equitable interest is established). The authorities do not speak with one voice on the question of which party bears the onus of proving or disproving the fact of notice.[11] In cases where the issue in question is whether a legal interest holder is taken to be a bona fide purchaser for value without notice, the authorities generally, but not overwhelmingly, support the view that it is up to the party seeking to avail themselves of that doctrine to plead and prove that at the relevant time they had no notice. While that doctrine does not apply in the current case, the current enquiry is not a dissimilar exercise. In Moffett v Dillon,[12] Ormiston JA observed that the discussion by Mason and Deane JJ in Heid v Reliance Finance Corporation Pty Ltd[13] (‘Heid’), regarding priorities between equitable interests did not resolve that issue, but went on to say:

For the present I would prefer to assume that the burden rests on the holder of the later equitable interest to show that that interest should be preferred over the interest created first in time.[14]

[11]See, for example, the discussion in Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (4^thed, Lexis Nexis Butterworths) at [8-300].

[12][1999] 2 VR 480.

[13](1983) 154 CLR 326.

[14]Moffett v Dillon [1999] 2 VR 480, 504.

Accordingly, I shall proceed on the basis that, if it is indeed established that Mr Kellam has an equitable interest in the land which pre-dates the charge, the onus rests with Roberts Gray to establish that the conduct of Mr Kellam is such as that his interest ought to be postponed. Practically speaking, in order to discharge that burden, Roberts Gray must establish, at the very least, an absence of actual, implied or constructive notice on its part of Mr Kellam’s prior equitable interest.

Roberts Gray’s Submissions

Roberts Gray submitted that registration of the Kellam mortgage would detrimentally affect the interest claimed by Roberts Gray in the caveat, as the Kellam mortgage would take priority ahead of Roberts Gray’s equitable interest as chargee.

In relation to the subrogation issue, Roberts Gray submitted that Mr Kellam has not established the existence of any subrogated interest in the land. In particular, Mr Kellam has not provided evidence of:

(a) the making of or amount of any payment by Mr Kellam to PG Walton to pay out the PG Walton mortgage;

(b) any transfer of funds by Mr Kellam, or receipt of any funds by PG Walton in respect of the loan secured by the PG Walton mortgage; and

(c) the circumstances in and terms upon which Mr Kellam is said to have procured the Kellam mortgage.

Roberts Gray submitted that Mr Kellam’s failure to adduce direct evidence of those matters tells against the existence of such evidence. In particular, Mr Kellam’s assertion that he paid out the PG Walton mortgage in full is not supported by any evidence. There is no cogent evidence before the Court as to the amount paid by Mr Kellam in discharge of the PG Walton mortgage, and as such, there is no evidence as to whether the subrogated right alleged by Mr Kellam is in respect of “thousands of dollars or a peppercorn”.

Roberts Gray submitted further that the failure of Mr Kellam to adduce evidence of the amount paid to PG Walton is crucial, as is it a cornerstone principle of subrogation that the amount in respect of which a subsequent lender is subrogated cannot ordinarily exceed the secured debt that has been discharged.

As for the question of whether Mr Kellam holds an equitable interest in the property, Roberts Gray submitted that Mr Kellam’s reliance on the decision of the New South Wales Supreme Court of Dixon v Barton[15] in support of his contention that his possession of the certificate of title and discharge of mortgage created an equitable mortgage in his favour cannot assist Mr Kellam in circumstances where there is no evidence of the deposit of certificate of title with Mr Kellam having taken place.
[15][2011] NSWSC 1525.

In regard to the priorities issue, Roberts Gray submitted that no evidence has been put before this Court as to the terms, date, sum advanced, interest rate, or other features of Mr Kellam’s asserted equitable interest in the land, save for the assertion that Mr Kellam’s interest is asserted to have arisen at an unspecified time prior to the execution of the charge.

Roberts Gray submitted that neither the draft financial statement or the sworn financial statement disclose any amount owed by Mr Brunner to Mr Kellam, and at best, the financial statements constitute notice of Mr Kellam being owed $30,000.00.

Roberts Gray acknowledged that Mr Brunner and Mr Kellam were entitled to keep their arrangements private, but submitted that the effect of keeping those arrangements private was to deprive Roberts Gray of notice of Mr Kellam’s equitable interest. Roberts Gray referred to the discussion of Mason and Deane JJ in Heid,[16] and submitted that Mr Kellam’s conduct in keeping his interest private was such that “in fairness and justice, the earlier interest should be postponed to the later interest”. In particular, by keeping his interest in the land private, Mr Kellam deprived Roberts Gray of notice of Mr Kellam’s interest in such a way that it was foreseeable that a person such as Roberts Gray would obtain an interest in the belief that the earlier interest did not exist.
[16](1983) 154 CLR 326.

As for the evidence of Mr Mooney to the effect that he informed Mr Roberts of a $250,000.00 loan to Mr Kellam, Roberts Gray submitted that no such liability was recorded in the draft financial statement or the sworn financial statement. Roberts Gray observed that Mr Mooney was not able to put a date on the alleged conversation between him and Mr Roberts. Under cross‑examination, Mr Mooney pointed to evidence of a meeting that took place on 18 July 2018, but that meeting was held after the charge was executed, and as such is of no assistance to Mr Kellam on the question of notice.

Roberts Gray submitted that none of Mr Kellam’s witnesses were able to point to a particular date upon which information regarding the Kellam mortgage was disclosed to Roberts Gray, observing that the invoices do not record any meeting between Roberts Gray and Mr Mooney prior to the execution of the charge, but do show a meeting subsequent to the execution of the charge.

Roberts Gray submitted that no executed copy of the June 2017 agreement was in evidence, the June 2017 agreement was not referred to by Mr Brunner in the draft financial statement or the sworn financial statement, and there was nothing to indicate that Roberts Gray was on notice of the existence of any secured debt to Mr Kellam at the time of the execution of the charge.

In relation to Mr Kellam’s assertion that he is entitled to exercise the power of sale in relation to the land pursuant to s 77 of the TLA, Roberts Gray submitted that the assertion is wrong in law and in fact, for the following reasons:

(a) Mr Kellam’s submission is predicated upon his being a registered mortgagee, but he has not discharged the burden of establishing an entitlement to register the Kellam mortgage;

(b) even if Mr Kellam were found to be a mortgagee of the land, no evidence has been led to show that Mr Brunner has defaulted in respect of the loan secured by the Kellam mortgage such as to enliven the power of sale conferred by s 77 of the TLA; and

(c) the Court has an inherent jurisdiction to order the sale of land to enforce an equitable charge, and following default, an equitable chargee is entitled to an order for sale as a matter of right.

Roberts Gray submitted that, in those circumstances, it is appropriate that the Court appoint a qualified and independent person to manage the sale of the land and oversee the distribution of the proceeds of sale.

As for its application to amend the caveat, Roberts Gray submitted that the amendment sought would narrow, not expand or alter the grounds in the caveat, and would not expand the claimed interest to the prejudice of the defendants or any third party. Roberts Gray submitted that the purpose of the powers contained in ss 90(2) and (3) of the TLA is to permit the correction of mistakes, and that Roberts Gray’s application, in the absence of any evidence of prejudice to third parties, ought be granted.

Roberts Gray submitted that the erroneous references to third parties in the caveat amount to technical errors which do not change the character of the caveatable interest, and no party is prejudiced by the existing caveat, or by the proposed amendment.

Mr Kellam’s submissions

Mr Kellam submitted that he holds two distinct security interests over the land:

(a) a subrogated right to the PG Walton mortgage; and

(b) an equitable interest by reason of his possession of the unregistered mortgage, the discharge of mortgage and the Certificate of Title.

Mr Kellam submitted that, by paying out the PG Walton mortgage on 16 August 2017, Mr Kellam is entitled to be subrogated to PG Walton’s rights under the PG Walton mortgage.

Mr Kellam submitted further that his registrable equitable mortgage should take priority over the charge. By reason of the Kellam mortgage, Mr Kellam is entitled as mortgagee by subrogation, and, if the Court directs the Registrar to register Mr Kellam’s equitable mortgage, to exercise his power of sale under s 77 of the TLA.

Mr Kellam referred to the following passage from the decision of Santow JA in Highland v Exception Holdings Pty Ltd (in liq) (citations omitted):[17]

Equitable subrogation may arise with respect to mortgage and security arrangements. It has been said that “[I]t is not open to doubt that where a third party pays off a mortgage he is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his own benefit. In Burston Finance Ltd v Speirway Ltd (in liq) Walton J described the typical case of subrogation in the following general terms:
What is the basis of the doctrine of subrogation? It is simply that, where A’s money is used to pay off the claim of B, who is a secured creditor, A is entitled to be regarded in equity as having had an assignment to him of B’s rights as a secured creditor… It finds one of its chief uses in the situation where one person advances money on the understanding that he is to have certain security for the money he had advanced, and, for one reason or another, he does not receive the promised security.[18]

[17][2006] NSWCA 318.

[18]Ibid [92].

Mr Kellam submitted that it is clear, unless contrary intention appears, that the PG Walton mortgage is to be kept alive for his benefit, and there is no evidence to the effect that he has expressed any contrary intention.

In response to Roberts Gray’s submission that Mr Kellam had not established that he paid out the PG Walton mortgage, Mr Kellam referred to the evidence of Mr Mooney to the effect that that Mr Mooney recalled a conversation with Mr Roberts in which Mr Mooney stated that the “private client mortgage [being the Kellam mortgage]” over the land secured $250,000 plus interest. Mr Kellam submitted that he is therefore entitled to an order that he stands in the shoes of PG Walton in accordance with the PG Walton mortgage.

Alternatively, Mr Kellam submitted that it is clear that Mr Kellam has an enforceable equitable mortgage over the land. Mr Kellam submitted that it is trite law that the execution of a mortgage instrument creates an equitable mortgage prior to its registration. In this regard, Mr Kellam relied upon the decision of Buckley LJ in Swiss Bank Corporation v Lloyd Bank Ltd,[19] as follows (citations omitted):

An equitable mortgage is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words evinces a contract to do so.[20]

[19][1982] AC 584.

[20]Ibid 594-595.

Mr Kellam submitted further that he holds the certificate of title and a discharge of the PG Walton mortgage, which of itself creates an equitable mortgage. In this respect, counsel referred to the decision of Ward J in Dixon v Barton,[21] as follows (citations omitted):

However, as Professor Butt recognises, an equitable mortgage may also be created by the deposit of the “title deed” (in practice, the certificate of title) as security for the money advanced. In equity, the deposit of the certificate of title as security for the money advanced is prima facie evidence of an agreement to grant a mortgage over the property and there, and equitable mortgage arises. The deposit of title deeds alone will give rise to a presumption of an equitable mortgage and the deposit of such documents of title may be construed as a sufficient act of performance of an implied agreement to give security so as to render the agreement capable of specific performance.[22]

[21][2011] NSWSC 1525.

[22]Ibid [144].

Mr Kellam went on to submit that, in determining an equitable priority dispute, there are two broad tests:

(a) the “notice” test, by which where a person with a later interest in land has notice of an earlier interest, the later interest will be postponed; and

(b) the “merits” test, comprising the following two tests:

(ix) the “better equity” test: where parties have equitable interests in land which are in all other respects equal, priority of time will give the better equity; and

(x) the “prima facie first in time” test: prima facie, the first interest in time will prevail unless there is conduct on the part of the first interest holder that justifies postponing that interest.

Mr Kellam submitted that it is clear that Roberts Gray had notice of the Kellam mortgage by reason of the following matters:

(a) Mr Brunner’s evidence that Roberts Gray had direct knowledge of Mr Kellam’s interest in the land, as Mr Brunner specifically instructed Mr Roberts about the Kellam mortgage for the purposes of the disclosure obligations;

(b) the draft financial statement and the sworn financial statement both disclose that Mr Brunner pays a weekly amount of $360.00 in respect of the Kellam mortgage;

(c) the invoice dated 29 June 2018 confirms receipt of the email from Mr Brunner attaching the draft financial statement, that is, before the charge was executed on 5 July 2018;

(d) Mr Mooney deposed that he had a conversation with Mr Roberts in which Mr Mooney said the “private client mortgage” over Yandoit secured $250,000.00 plus interest. The Kellam mortgage was typically referred to as either “Jim’s mortgage”, the “Yandoit mortgage” or a “private mortgage”, and it was not possible that Mr Roberts was unaware of the existence of Mr Kellam’s mortgage prior to 5 July 2018;

(e) Mr Roberts acknowledged receiving the draft financial statement, and he attended to filing the sworn financial statement;

(f) Mr Brunner confirmed that there was no need for him to tell Mr Roberts about his lack of equity in the land, as Mr Roberts helped to prepare Mr Brunner’s financial statements and knew what equity was available in each property;

(g) Roberts Gray made no enquiries of Mr Kellam to confirm the sum borrowed by Mr Brunner or the terms of any loan made by him; and

(h) Roberts Gray has not adduced any direct evidence to the effect that it did not know of Mr Kellam’s equitable mortgage prior to the signing of the charge.

Accordingly, Mr Kellam submitted that, as Roberts Gray had notice of Mr Kellam’s interest, its interest as chargee must be postponed to Mr Kellam’s interest as the holder of an equitable mortgage.

In respect of the merits test, Mr Kellam submitted that little turns on whether this Court applies the “better equity” or “prima facie first in time tests”, as both require consideration of the parties’ conduct.

Mr Kellam referred to the following passage in Butt’s Land Law[23]:

In searching for the better equity, priority in time of creation is a factor strongly advantaging the earlier interest, but it is not necessarily determinative. A court is free to consider all relevant factors to find the better equity, and it resorts to the “first in time” maxim only where the claimants’ respective merits are equal and there exists no other sufficient ground for preferring one over the other.[24]

[23]Edgeworth, B, ‘Butt’s Land Law’ (Lawbook Co, 7^th ed, 2012)

[24]Ibid, 912 [12.1160].

Mr Kellam submitted that his equitable mortgage must take priority over the charge for the following reasons:

(a) Mr Kellam’s equitable mortgage was created 282 days before the charge;

(b) Roberts Gray lodged the caveat 56 days after the charge was signed, and in any event the caveat is flawed and ought to be removed from the register;

(c) Mr Kellam’s failure to lodge a caveat to protect his equitable interest is not fatal to his claim for priority;

(d) Roberts Gray’s failure to undertake a title search, or interpret it competently, caused the caveat to be lodged over the wrong titles, and Mr Roberts acknowledged that he did not conduct a title search before the charge was executed;

(e) Roberts Gray had notice of Mr Kellam’s equitable mortgage;

(f) Roberts Gray did not make any enquiries of PG Walton or TL Rentals to determine what debts may be owed to them by Mr Brunner before executing the charge;

(g) Mr Roberts did not know if a title search was conducted by his office prior to taking out the charge, and the first contact that Roberts Gray had with PG Walton was by a telephone call on 9 January 2019;

(h) had Roberts Gray contacted PG Walton before taking the charge, it would have discovered that the PG Walton mortgage had been discharged by Mr Kellam and that Mr Kellam had possession of the certificate of title and discharge of mortgage; and

(i) the first time Roberts Gray made enquiries of TL Rentals to ascertain what moneys it claims are secured by the land was on 8 May 2020, four days before the hearing of Roberts Gray’s application.

Accordingly, Mr Kellam submitted that his unregistered mortgage is entitled to priority over Roberts Gray’s charge.

As for the application to amend the caveat, Mr Kellam submitted that the caveat is defective and Roberts Gray should not be permitted to amend it. Mr Kellam relied upon the decision of Menhennitt J in Midwarren Estates Pty Ltd v Retek[25] as authority for the proposition that there is a distinction between allowing an amendment to the scope of protection provided by a caveat (which is permissible) and an amendment to the estate or interest claimed in the caveat (which is impermissible).
[25][1975] VR 575.

Mr Kellam submitted that the following matters tell against the exercise of this Court’s discretion to allow the amendment of the caveat:

(a) Roberts Gray’s failure to undertake, or accurately interpret, a title search caused the caveat to be lodged erroneously over the titles to properties in which Roberts Gray had no proprietary interest;

(b) this Court has stated on numerous occasions that caveats cannot be imprecisely formulated, only to be fixed up later;

(c) Mr Roberts did not accept that he has made an error in lodging the caveat, even though it is clear the caveat is defective, as Mr Roberts voluntarily withdrew the caveat from the title of five of the six properties;

(d) a caveat may be removed on the basis that it is stated too widely; and

(e) the caveat placed an absolute prohibition on dealings with all six properties in circumstances where a conditional prohibition to the extent of the debt owed would have been sufficient.

Discussion

My conclusions with respect to the issues in this proceeding are as follows:

(a) Mr Kellam is entitled to be subrogated to the PG Walton mortgage for the sum paid by him to PG Walton to discharge the loan made by PG Walton to Mr Brunner and secured by the PG Walton mortgage, plus any interest due upon that sum at a rate to be determined;

(b) Mr Kellam has established that he is the holder of an equitable mortgage which came into existence prior to the execution of the charge. As the holder of the prior equitable interest, he is prima facie entitled to priority over the interest of Roberts Gray. Mr Kellam has not engaged in any conduct which would disentitle him from claiming priority over the interest of Roberts Gray. Finally, while I accept that Roberts Gray may not have had notice of the exact nature of the interest held by Mr Kellam in the land, and/or that the identity of the interest holder was Mr Kellam, Roberts Gray had constructive notice of the fact that the land was encumbered;

(c) given that Mr Kellam stands in the shoes of the holder of a registered mortgage, Mr Kellam has a prima facie entitlement to take possession of and sell the land, provided the requirements of s 77 of the TLA have been fulfilled, and subject to his obligations to account to TL Rentals and Roberts Gray;

(d) I will permit Roberts Gray to amend the caveat in accordance with the orders sought in the originating motion; and

(e) given that there is no evidence that the threshold requirements of s 77 of the TLA have been met, and given that the parties all agree that the land should be sold, I will appoint the trustee to sell the land and account to the various interest holders.

My reasons follow.

Subrogation

The principle of subrogation provides a mechanism for the transfer of rights from one person to another without the formal assignment or assent of the person from whom the rights are transferred.[26]
[26]Orakpo v Manson Investments Ltd [1977] 3 WLR 229, 234.

Where a third party pays off a secured debt of another, such as a mortgage, the third party will be presumed in equity, unless a contrary intention is established, to intend to keep the security alive for its benefit and to be entitled to the rights of the creditor whose loan is paid out.[27]
[27]Ghana Commercial Bank v Chandiram [1960] 3 WLR 328, 336.

The question of whether the party providing the money to pay out the loan has, in fact, kept the security alive will depend on the intention of the party making the payment.[28]
[28]Paul v Speirway [1976] 2 WLR 715.

The quantum of the debt for which a party seeks to be subrogated cannot normally exceed the amount of the secured debt that the party has discharged.[29] Further, while there is little discussion, but some conflict, in the authorities regarding the question of whether a party claiming to be subrogated to the rights of a prior mortgagee is entitled to the benefit of the terms of the underlying loan contract (such as the interest rate), I consider that the better view is that the party asserting a right to subrogation does not automatically acquire identical contractual rights to the original interest holder, such as, for example the interest rate payable by the mortgagor to the original lender.[30]
[29]Ibid, [43].
[30]See the discussion in Titles Strata Management Pty Ltd v Nirta [2015] VSC 187 at [109]-[123].

The following matters are relied upon by Mr Kellam in support of his contention that the Kellam mortgage is entitled to be subrogated to the PG Walton mortgage:

(a) Mr Yam deposed that the director of PG Walton told him there are no moneys owing to PG Walton under the PG Walton mortgage and that PG Walton has no interest in the land;

(b) the email from Summer Lawyers to SLF and Diamonds Solicitors dated 23 January 2019 stated that it sent the certificate of title for the land and a discharge of mortgage to Diamonds Solicitors on 6 October 2017; and

(c) Mr Kellam deposed that the PG Walton mortgage has been paid out in full.

It is fair to say that this evidence is less than overwhelming. That said, I am satisfied, on the balance of probabilities, that Mr Kellam did pay out the PG Walton mortgage, and as such, is entitled to stand in its shoes, and to register the Kellam mortgage.

First, while Roberts Gray criticised the absence of evidence regarding the transfer of funds and the terms of any advance by Mr Kellam to Mr Brunner, the evidence that is available supports Mr Kellam’s claim to be subrogated to the interest of PG Walton, and there is no evidence to contradict this claim. First, Mr Brunner deposed that the facts referred to in Diamonds Solicitors’ letter of 9 January 2019 were true. In that letter, Mr McNab expressly stated that Mr Kellam provided financial accommodation to Mr Brunner in August 2017 by acquiring the PG Walton debt and first mortgage security.

Secondly, PG Walton has undisputably been paid out by a client of Diamonds Solicitors, given that the discharge of the mortgage and the Certificate of Title were delivered to its office. While no details have been provided of the time and amount of funds transferred, one can infer that the loan was discharged prior to October 2017, when the Certificate of Title and the discharge of mortgage for the land were delivered to Diamonds Solicitors. The timing of the execution of the epitome of mortgage was also consistent with Mr Kellam having paid out the PG Walton mortgage. Given the apparent financial difficulties that Mr Brunner was in during the relevant period, it seems to be highly unlikely that he paid out the PG Walton mortgage, and in any event, such a proposition was not put to him when he gave evidence.

Thirdly, while the evidence in support of Mr Kellam’s claim is somewhat sparse, and Mr Roberts in his evidence cast some aspersions upon Mr Brunner’s integrity, it was not put to Mr Brunner (or, for that matter, Mr Kellam) that the transaction in question, being the execution and application for registration of the Kellam mortgage, was a sham. Such an allegation, which is tantamount to an allegation of fraud, would need to have been squarely put to both Mr Brunner and Mr Kellam, and it was not so put. Indeed, Mr Kellam was not even required to attend for cross-examination.

Ordinarily, in the absence of any evidence to the effect that the epitome of mortgage was either a forgery or a sham, the very existence of that document is compelling evidence of the evidence and validity of an equitable mortgage. While I agree that the absence of additional evidence concerning the transaction is odd, I do not consider it to be fatal to Mr Kellam’s claim. Indeed, in Moffett v Dillon (‘Moffett’),[31] a decision concerned with the priority between competing equitable interests, the only evidence of the bank’s mortgage was the epitome of mortgage itself. Brooking JA observed that:

… [the mortgage] is in the usual wide terms of a bank mortgage and does not reveal whether any advances were made by the bank to the mortgagor at the time of the giving of the mortgage. Nor does the evidence disclose this. Indeed the bank has not put forward any evidence concerning the state of accounts between the mortgagor and itself or any of the circumstances in which it took the mortgage.[32]

[31][1999] 2 VR 480.

[32]Ibid, 483.

Of course, Moffett[33] was a case where the provenance of the relevant mortgage instrument itself was not in question, given that the mortgagee was a major bank. I also accept that a passing observation of that nature does not amount to a binding statement of principle to the effect that an executed instrument of mortgage is conclusive evidence of the interest claimed. However, it does illustrate the fact that a paucity of the evidence regarding the transaction giving rise to the execution of the mortgage instrument does not necessarily preclude a finding that the instrument is valid on its face, at least in circumstances where it was not put to the parties executing the mortgage that it was a forgery or was otherwise a sham.
[33]Ibid.

Accordingly, Mr Kellam is entitled to be subrogated to the rights of PG Walton as mortgagee. However, the amount paid by Mr Kellam to pay out the PG Walton mortgage remains relevant: he is entitled to be subrogated only to the extent to which he has paid out the PG Walton mortgage, plus an amount to be determined with respect to interest. To the extent that the Kellam mortgage secures other advances made by Mr Kellam to Mr Brunner, and interest charges in excess of what would be an appropriate amount, then, subject to my findings regarding the competing interests of Mr Kellam and Roberts Gray, Mr Kellam’s interest then ranks behind the charge in favour of TL Rentals. However, the precise quantification of the amounts due to Mr Kellam is really a matter for the accounting to take place upon the sale of the land and the distribution of the proceeds of sale.

Priorities as between Mr Kellam and Roberts Gray

As I have found that Mr Kellam is entitled to be subrogated to the rights of PG Walton with respect to the amounts paid by him or on his behalf to Roberts Gray, the question of whether Mr Kellam’s interest as the holder of an equitable mortgage should prevail over Roberts Gray’s interest as chargee is only relevant to any sums secured by the Kellam mortgage which are not referable to the PG Walton mortgage. However, as that sum has not been quantified, and if I am wrong with respect to my conclusion that Mr Kellam is entitled to subrogated to the rights of PG Walton, I will address the priority issue in the following paragraphs of these reasons.

For the reasons in the section of these reasons dealing with the subrogation issue, I accept that Mr Kellam holds an equitable interest in the land which pre-dates the interest of Roberts Gray. I accept that the execution of the Kellam mortgage by Mr Brunner was sufficient to create an equitable interest in the land. The real question is whether, given the absence on the title to the land of any mortgage or caveat recording Mr Kellam’s interest, such as to give notice to third parties (including, but not limited to, Roberts Gray) of Mr Kellam’s claim to an equitable interest in the land, Mr Kellam’s equitable interest should be postponed to the interest created by the charge.

The leading Australian authority of relevance to this aspect of the current proceeding is the decision of the High Court in Heid.[34] The facts in Heid,[35] as well as the relevant principles, bear some attention in these reasons.
[34](1983) 154 CLR 326.
[35]Ibid.

In Heid,[36] the registered proprietor of the property in question (‘Heid’) entered into an agreement to sell the property to Connell Investments Pty Ltd (‘Connell Investments’), a company within a group of companies controlled by a firm of mortgage brokers (‘firm’). The sale price was $165,000.00, of which:
[36]Ibid.

(a) $15,000.00 was to be paid to or at the direction of Heid upon completion;

(b) $100,000.00 was to be deposited with another company within the group of companies for the benefit of Heid; and

(c) $50,000.00 was to be lent by Heid to Connell Investments and secured by a mortgage over the land.

At the request of the firm, Heid agreed to commit the handling of transactions associated with the sale to an individual who was described as a solicitor, but was in fact an unqualified employee of the firm (‘employee’). He signed an authority addressed to his bank authorising it to deliver the title documents to the employee, and signed and left with the employee a contract of sale and memorandum of transfer, which contained an acknowledgment that the total price of $165,000.00 had been received by Heid.

A memorandum of mortgage was signed by Heid as mortgagee and Connell Investments as mortgagor recording the mortgage over the land in favour of Heid to secure payment of $50,000.00 plus interest (‘Heid mortgage’). The Heid mortgage was never registered.

The sum of $15,000.00 was paid to Heid but the balance of $100,000.00 was never paid. As such, Heid had an unregistered mortgage for the sum of $50,000.00 and a vendor’s lien for the balance owing under the sale contract.

Later, Connell Investments executed a mortgage over the land in favour of Reliance Finance (‘first Connell mortgage’). The certificate of title to the land and the memorandum of transfer were provided to a solicitor for Reliance Finance, who relied upon the fact that the transfer was regular on its face. Reliance Finance lodged the transfer for registration and also lodged a caveat to the protect Reliance Finance’s interest as mortgagee. Some week later, the transfer was registered and the caveat noted on the title. Subsequently, a further mortgage (‘second Connell mortgage’) was granted by Connell Investments.

Neither the first or the second Connell mortgages were registered. In September 1977, Heid lodged a caveat in respect of his interest under the Heid mortgage. The key issue before the High Court was whether, by reason of his conduct, Heid’s equitable interest should be postponed to the first and second Connell mortgages.

In relation to the applicable principles, Mason and Deane JJ stated as follows:

Where the merits are equal, the general principle application to competing equitable interests is summed up in the maxim qui prior tempore est jure – priority in time of creation gives the better equity. But where the merits are unequal and favour the later interest, as for instance where the owner of the later interest is led by conduct on the part of the owner of the earlier interest to acquire the later interest in the belied or on the supposition that the earlier interest did not then exist, priority will be accorded to the later interest.[37]

[37]Ibid, 339.

Their Honours observed that a common example of postponing conduct by a vendor is the arming of a third person with indicia of title, such as title deeds and an acknowledgment of payment in full.

In relation to the conceptual basis for determining priority, their Honours stated further:

For our part, we consider it preferable to avoid the contortions and convolutions associated with basing the postponement of the first to the second equity exclusively on estoppel and to accept a more general and flexible principle that preference should be given to what is the better equity in an examination of the relevant circumstances. It will always be necessary to characterise the conduct of the holder of the earlier interest in order to determine whether, in all the circumstances, that conduct is such that in fairness and in justice, the earlier interest should be postponed to the later interest.[38]

[38]Ibid, 341.

In regard to the meaning of “fairness and justice”, their Honours stated relevantly as follows:

To say that the question involves general considerations of fairness and justice acknowledges that, in whatever form the relevant test be stated, the overriding question is “…whose is the better equity, bearing in mind the conduct of both parties, the question of any negligence on the part of the prior claimant, the effect of any representation as possible raising an estoppel and whether it can be said that the conduct of the first or prior owner have enabled such a representation to be made…” Thus elements of both negligence and estoppel will often be found in the statements of general principle.
It may be that an equitable interest will not be postponed to an equitable interest created later in time merely because there is a causal nexus between an act or omission on the part of the prior equitable owner and an assumption on the part of the later equitable owner as to the non-existence of the prior equity. Fairness and justice demand that we be primarily concerned with acts of a certain kind – those acts during the carrying out of which is it reasonably foreseeable that a later equitable interest will be created and that the holder of that interest will assume the non-existence of the earlier interest.
Thus, the mere failure of a the holder of a prior equitable interest in land to lodge a caveat does not in itself involve the loss of priority which the time of the creation would otherwise give.[39]

[39]Ibid, 341-2.

Their Honours held further that, determination of which interest takes priority requires consideration of:

(a)whether there has been an act, neglect or default of the relevant kind by Heid; and
(b)what the reasonably foreseeable consequences are of Heid’s conduct in furnishing the employee with the instrument of transfer and certificate of title.[40]

[40]Ibid, 342.

Mason and Deane JJ observed that there were two special elements of Heid’s conduct which warranted Heid’s interest being postponed Connell mortgages:

(a)the instrument of transfer signed by Heid contained an acknowledgment of receipt by him of the purchase money, which was in fact unpaid; and
(b)Heid left the signed instrument of transfer together with the authority to collect the certificate of title with the employee, who Heid believed was a solicitor and moreover was employed by the firm.[41]

[41]Ibid, 343.

Their Honours stated, that, if the employee had been an independent solicitor, Heid would have been entitled to retain his priority. However, as the employee was introduced to Heid as an employee of the firm acting on behalf of Connell Investments, it was reckless for Heid to accept the firm’s representation that the employee was a solicitor who could also act for Heid.[42] Knowing that the employee was employed by the firm, Heid should reasonably have apprehended that the employee might be required by Connell Investments to act in accordance with its instructions, and there was therefore a greater risk that the documents might be put to the use for the purposes of Connell Investments’ interests, contrary to Heid’s interests.[43]
[42]Ibid, 344.
[43]Ibid, 345.

The question of the relevance of notice to disputes between equitable interest holders was also the subject of detailed consideration in the decision of the Court of Appeal in Moffett.[44] Again, the facts in that case and the discussion of the applicable principles by Brooking JA (with whom Buchanan JA agreed), bear some consideration in the context of the current dispute.
[44][1999] 2 VR 480.

Moffett was the registered proprietor of a property in Broadford. In 1985, Moffett sold the house to Ms Thelma Dillon (‘Dillon’) for $175,000. The contract of sale was a terms contract of sale, under which:

(a) a deposit of $15,000 was to be paid on the date of the contract, with the residue paid on 24 September 1988;

(b) vacant possession was to be given on acceptance of title and payment of the deposit; and

(c) interest was to be paid on the residue at 15 per cent per annum, by weekly instalments of $500 commencing one week after the giving of possession

Dillon gave Moffett a promissory note for the deposit plus one month’s interest and took possession of the land on 24 September 1985. The promissory note was dishonoured when it was presented for payment. Moffett then served a notice of rescission.

Following the issue of the rescission notice, Dillon then gave Moffett an equitable charge over the land for the purposes of securing “all moneys due and payable” pursuant to the contract. Moffett subsequently lodged a caveat claiming an interest as mortgagee pursuant to the charge.

On 27 February 1986, Dillon gave Westpac Bank (‘bank’) a second mortgage in registrable form over the land. The bank conceded it was aware of the existence of the charge when it took its mortgage.

On 17 September 1987, the Registrar of Titles informed Moffett that the bank had lodged its mortgage for registration. Moffett sought an injunction to prevent registration of the bank’s mortgage. Moffett obtained the injunction in October 1987, however by mistake the bank’s mortgage was nevertheless registered. Moffett subsequently filed a summons seeking to the bank’s mortgage removed from the register. The bank opposed the removal of its mortgage on the basis that it took priority over the charge.

The issues before the Court of Appeal were whether:

(a) the bank had a better equity by reason that its mortgage was in registrable form while the charge was not; and

(b) whether the fact that the bank had notice of the charge when it took the mortgage meant that the bank’s interest should be postponed.

In separate judgments delivered by Brooking JA (Buchanan JA agreeing) and Ormiston JA, the Court of Appeal held that Moffett’s equitable interest took priority over the interests of the bank’s mortgage.

Brooking JA held that a person taking an interest with notice of an earlier interest will take it subject to that interest, unless the earlier interest holder has engaged in conduct to induce the belief in the later interest holder that the earlier interest no longer exists.

His Honour held that the fact that the bank took its mortgage with notice of the charge was fatal to its claim that its equitable interest should prevail over Moffett’s. His Honour stated as follows:

I know of no decision in which a later equity has been held to prevail where its holder acquired it with knowledge of the creation and continued existence of the earlier equity. I defer consideration of whether circumstances are conceivable in which that result could be arrived at.[45]

[45]Ibid, 485.

His Honour cited the decision of Knox CJ in Abigail v Lapin,[46] as follows:

If the holder of the subsequent equity acquired it with notice of the prior equity, his claim for priority necessarily fails; but the fact that he took without notice or that it is not proved that he had notice of the prior equity amounts to no more than fact to be considered in connection with the other circumstances on the question whether the conduct of the holder of the prior equity is such as to entitle the holder of the subsequent equity to priority over him…
…the possessor of the prior equity is not to be postponed to the possessor of a subsequent equity unless the act or omission proved against him has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it, that the prior equity was not in existence.[47]

[46](1934) 51 CLR 58.

[47][1999] 2 VR 480, 486. See also Wu v Glaros (1991) 55 SASR 408, 415.

His Honour rejected the bank’s submission that its interest should be given priority on the basis that the mortgage was a registrable instrument while the charge was not, stating as follows:

The better equity does not mean, where two equitable securities are in competition, the better, in the sense of more efficacious, security.
To my mind there is no reason for preferring an equity created by a registrable instrument to one created by an instrument that is not registrable or one that is not created by any instrument, registrable or not. Counsel for the bank was unable to refer us to any decision or dictum in support of his contention. Acts done, or omitted to be done, by or on behalf of a party in relation to the register kept by the Registrar of Titles will often bear on whether a prior equity is to be postponed, but the mere fact that one equity is created by a registrable instrument and the other is not has no bearing on that question.[48]

[48]Ibid, 491.

Accordingly, Mr Kellam’s claim to priority is not founded on the fact that he has an unregistered, but registrable, mortgage (compared with the charge), but upon the fact that his equitable interest pre-dates that of Roberts Gray, and should prevail, unless there has been some postponing conduct on his part.

Finally, the authorities refer to “notice”, for the purpose of determining the priority between equitable interest holders as being actual, imputed, or constructive notice. What amounts to actual knowledge requires no further explanation. The issue of whether notice can be imputed to a party generally concerns the question of whether the knowledge of an agent or other privy can be sheeted home to a principal, and again, is not relevant here. The question of whether a party can be found to have constructive notice of an earlier equitable interest is perhaps less clear-cut, but, in general, a person seeking to take an interest in land could be at least expected to have notice of interests which are recorded on the register at the time the interest is taken. As stated by the House of Lords in Barclays Bank Plc v O’Brien:[49]

... the earlier right prevails against the later right if the acquirer of the later right knows of the earlier right (actual notice) or would have discovered it had he taken proper steps (constructive notice).[50]

[49][1994] 1 AC 180. See also the discussion in Elderly Citizens Homes of SA Inc v Balnaves (1998) 72 SASR 210 [47]

[50]Ibid, 195.

In my view, the evidence is inconclusive as to whether Roberts Gray had actual notice of the Kellam mortgage. Mr Roberts was adamant that he was not aware of the Kellam mortgage, or at least of any loan in an amount far exceeding the sum of $30,000.00. Mr Brunner and Mr Mooney were adamant that Mr Roberts must have been aware of the Kellam mortgage, because it was disclosed to Mr Roberts during the course of telephone calls and meetings which took place for the purpose of Mr Brunner complying with the disclosure obligations.

However, neither Mr Brunner or Mr Mooney could give a precise (or even reasonably approximate) date upon which these alleged conversations took place. Given that the draft financial statement was sent to Roberts Gray on 11 May 2018, and the sworn financial statement was filed on 20 July 2018 (that is, after the execution of the charge on 5 July 2018), it is not possible to reach a confident conclusion regarding what Mr Roberts knew about the Kellam mortgage and when he knew it. The draft financial statement did not expressly refer to the Kellam mortgage, although it does refer to a mortgage of $200,000.00, which is consistent with the amount paid to PG Walton. Further, if Mr Mooney’s evidence that he told Mr Roberts about the Kellam mortgage during a face-to-face meeting is correct, it seems unlikely that there would be no reference to such a meeting having taken place in the invoices.

While the invoices record a number of telephone calls and text messages between Mr Roberts and Mr Mooney between 14 May 2018 and 5 July 2018 (the day the charge was executed), the only reference in the invoices to conferences where Mr Mooney met with Mr Roberts are two meetings on 18 and 20 July 2018, that is, after the execution of the charge. The absence of any reference in the invoices to any other meeting is not conclusive evidence that such a meeting did not take place, but, given the level of detail in the invoices (and, the quite reasonable assumption that all work carried out by Mr Brunner would have been recorded and billed, particularly when that work involved in-person meetings), it seems quite likely that the conversation referred to by Mr Mooney and Mr Brunner took place on either 18 or 20 July 2018, that is, after the execution of the charge. That is consistent with more detail concerning Mr Brunner’s liability to Mr Kellam being included in the sworn financial statement than in the draft financial statement.

However, that is not the end of the matter, given that it would have been open to Roberts Gray (and prudent) to conduct a title search with respect to the land prior to taking the charge. Mr Roberts gave evidence that he did not know whether any title searches had been conducted prior to the execution of the charge. The invoices show that on 14 June 2018, someone from Roberts Gray’s office conducted title searches with respect to two properties, with title references Vol 9512 Folio 837 and Vol 9512 Folio 842. The latter property is one of the other properties referred to in the caveat. Accordingly, I can infer that no title search was conducted with respect to the land prior to the execution of the charge: if such a search had been undertaken it would probably have been disclosed in the invoices.

In some respects, the failure of Roberts Gray to conduct a title search with respect to the land, or closely question Mr Brunner or Mr Mooney about any encumbrances over the land is understandable. After all, the caveat was lodged over the title to six properties, many or all of which are no doubt more valuable than the land. The sworn financial statement shows that, apart from the land, Mr Brunner claimed a 100 per cent beneficial interest in four properties in St Kilda worth a total of $2.25 million. Mr Roberts’ evidence suggests that he (mistakenly) believed that Mr Brunner had a legal interest in the other properties. In those circumstances, one might expect that Mr Roberts considered that the charge provided adequate security for any outstanding debt owed to Roberts Gray by Mr Brunner, such that he felt no need to investigate whether the land was encumbered. The land was just one of a number of properties which Mr Roberts believed were secured by the charge.

However, while Mr Roberts’ lack of curiosity about the possible encumbrances over the land is explicable, it is not excusable in the context of a priority dispute. Roberts Gray submitted that Mr Kellam, by keeping his dealings with Mr Brunner “private”, deprived Roberts Gray of Mr Kellam’s interest in such a way that it was fair and just that Mr Kellam’s interest be postponed to the interest of Roberts Gray.

However, while it is correct to say that a title search of the land at the time the charge was taken would not have led to Mr Kellam’s interest in the land being disclosed, it would have showed the existence of the PG Walton mortgage and the TL Rentals caveat. Upon such a discovery, Roberts Gray would have been in a position to make more fulsome inquiries of PG Walton and/or TL Rentals and Mr Brunner.

Of course, the dispute here is between Roberts Gray and Mr Kellam, not Roberts Gray and PG Walton or TL Rentals. However, I do not see how that makes any practical difference. The existence of the PG Walton mortgage on the title to the land showed that the land was encumbered by a registered first mortgage. If alerted to that, Mr Roberts may well have recalled the correspondence from Lander & Rogers in November 2017 to that effect, or at least made further enquiries, noting that the invoices show that Mr Roberts reviewed the letter from Lander & Rogers regarding this issue on the day it was received.

Further, in my view, contrary to Roberts Gray’s submissions, Mr Kellam has not conducted himself in such a manner as to induce a party in the position of Roberts Gray into believing there was no prior interest holder. The best available evidence is that he held the discharge of mortgage and the Certificate of Title. He had not lodged a caveat over the title to the land, but, he had no need to do so in order to protect his position, given that the PG Walton mortgage would remain on title until he took steps to lodge the discharge of mortgage or apply to register the Kellam mortgage. The agreement by Mr Brunner and Mr Kellam to keep their arrangements private did not misrepresent the position to third parties: that much is evident from the letter from Lander & Rogers referred to above, which expressly referred to the PG Walton mortgage, and the fact that it secured the land.

Accordingly, even if I am wrong in finding that Roberts Gray had at least constructive notice of the Kellam mortgage, in that reasonable inquiries would have disclosed the existence of the PG Walton mortgage, there is no basis for concluding that Mr Kellam’s equitable interest ought to be postponed to Roberts Gray’s interest. He has not, using the language of Mason and Deane JJ in Heid,[51] committed any act, neglect or default which would warrant postponing his interest to the interest claimed by the charge.
[51](1983) 154 CLR 326.

Should Roberts Gray be permitted to amend the caveat?

The principles governing the Court’s discretionary power to amend a caveat are not in dispute between the parties.

Sections 90(2) and 90(3) of the TLA provide as follows:

(2)If before the expiration of the said period of thirty days or such further period as is specified in any order made under this subsection the caveator or the caveator’s agent appears before a court and gives such undertaking or security or lodges such sum as the court considers sufficient to indemnify every person against any damage that may be sustained by reason of any disposition of the property being delayed, the court may direct the Registrar to delay registering any dealing with the land for a further period specified in the order, or may make such other order (and in either case such order as to costs) as is just.
(3) 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.

A leading authority in this jurisdiction concerning the question of whether the Court ought permit the amendment of a caveat is the decision in Percy & Michele Pty Ltd v Gangemi.[52] In that decision, Macaulay J was concerned with an application by a caveator to amend the interest claimed in the caveat in a proceeding brought by the registered proprietor of the relevant land to remove the caveat. The caveat claimed “an estate in fee simple”, and the caveator sought to amend the interest claimed to be “an equitable interest as chargee”.
[52][2010] VSC 530. This decision has been approved and followed in, among other decisions, Matorella v Innovision Developments Pty Ltd [2011] VSC 282; TL Rentals Pty Ltd v Youth on Call Pty Ltd [2018] VSC 105; Ren v Shi [2012] VSC 271.

His Honour observed that the power to amend in s 90(3) of the TLA is “wide and unqualified”, but went on to say as follows:

Ultimately, the better view may be that although the power is to be construed as being wide enough to amend the estate or interest claimed in appropriate circumstances, nevertheless when exercising its discretion the court should generally be less inclined to amend the interest or estate claimed than to amend the grounds of the claim on the scope of the protection asserted.[53]

[53]Ibid, [101].

The rationale for imposing stricter criteria for granting amendments to the estate or interest claimed is founded upon the concern that, in allowing an amendment to the interest or estate claimed, the Court is in effect substituting one caveat for another, which complicates the role of the Registrar of Titles in assessing whether a particular dealing is prohibited by the caveat in question. Further, any amendment may potentially have an adverse impact upon third parties in priority disputes.

Factors referred to as being relevant to the exercise of the discretion include the following:

(a) whether the proposed amendment is to the interest claimed as opposed to the grounds of claim or the scope of protection;

(b) the circumstances in which the error was made, including, but not limited to, whether the caveator had legal advice and/or assistance in formulating and lodging the caveat;

(c) the cautious approach which should be taken to the amendment of caveats, such as to discourage the practice of lodging imprecisely formulated caveats on the assumption that they can rectified later; and

(d) the overall merits of the claim for a caveatable interest in the land of the kind sought by the amendment.[54]

[54]Ibid [104]-[105].

I will grant the application to amend the caveat. First, the proposed amendment will not alter the estate or interest over the land claimed in the caveat: rather, it simply amends the grounds of the claim to delete the reference to other parties mistakenly said to have been parties to the agreement upon which the charge was granted, which cannot prejudice either the parties to this proceeding or any other third party. To the extent that the registered proprietors of the other properties have suffered loss by reason of the caveat affecting their ability to deal with the other properties, they have their remedies under s 118 of the TLA.

Secondly, there is no doubt that Roberts Gray has an interest in the land as chargee. The question of the validity of the charge has fallen away by reason of Mr Brunner no longer being an active party in this proceeding. The only question that remains in dispute is the question of priority afforded to the parties’ respective equitable interests, and that issue should be determined on its merits.

For completeness, while I appreciate that the fact that the caveat was lodged by Roberts Gray, such that less latitude ought to be shown than if the caveat had been prepared by a layperson, I consider that the prejudice to Roberts Gray of not being able to amend the caveat far outweighs this consideration, given that the amendment is to the grounds of the claim, not the estate or interest claimed in the land.

Who should sell the land?

Mr Kellam claims that, as he is entitled to orders that the Registrar of Titles register the Kellam mortgage, he is entitled to assume all of the rights and powers of a registered mortgagee of the land, including the power of sale. Mr Kellam also acknowledged, through his counsel, that he would bear the obligations of a registered mortgagee, including the obligation to account to other secured creditors for the proceeds of sale in accordance with s 83 of the TLA.

Roberts Gray submitted that the Court should appoint an independent party, namely the trustee, to sell the land and account to the secured creditors.

The relevant considerations to be taken into account in determining this dispute are as follows:

(a) given my finding to the effect that Mr Kellam is entitled to be subrogated to the interests of PG Walton, or, alternatively, that his equitable mortgage has priority over Roberts Gray’s charge, the restraint upon the registration of the Kellam mortgage should be lifted, and prima facie, Mr Kellam should be empowered with the usual rights of a registered mortgagee;

(b) the appointment of the trustee to sell the land would incur additional expenses in circumstances where the pool of available funds is unlikely to satisfy the debts of the secured creditors;

(c) however, I agree with Roberts Gray’s submission to the effect that there is no evidence that the preconditions to the exercise of the power of sale under s 77 of the TLA have been satisfied by Mr Kellam; and

(d) given the gaps in the evidence regarding the transaction underlying the Kellam mortgage, and the mistrust between the parties, the parties and the Court should draw some comfort from the sale process being managed independently from the secured creditors.

Section 77 of the TLA provides as follows:

Power of sale under a mortgage or charge
(1)If within one month after the service of such notice or demand or such other period as is fixed in such mortgage or charge the mortgagor grantor or other persons do not comply with the notice or demand the mortgagee or annuitant may, in good faith and having regard to the interests of the mortgagor grantor or other persons, sell or concur with any other person in selling the mortgaged or charged land or any part thereof, together or in lots, by public auction or by private contract, at one or several times, and for a sum payable in one amount or by instalments, subject to such terms and conditions as the mortgagee or annuitant thinks fit, with power to vary any contract for sale and to buy in at any auction or to rescind any contract for sale and to resell without being answerable for any loss occasioned thereby and with power to make such roads streets and passages and grant and reserve such easements as the circumstances of the case require and the mortgagee or annuitant thinks fit, and may make and sign such transfers and do such acts and things as are necessary for effectuating any such sale.
(2) An instrument of transfer by a mortgagee or annuitant expressed to be in exercise of the power of sale and in an appropriate approved form may be accepted by the Registrar as sufficient evidence that the power has been duly exercised.

(3) The purchase money received arising from the sale shall be applied—
(a)firstly in payment of all costs charges and expenses properly incurred incidental to the sale and consequent on such default;
(b)secondly in payment of the moneys which are due or owing on the mortgage or charge;
(c)thirdly in payment of moneys owing under or in respect of subsequent mortgages and charges in the order of their respective priorities;
(d)fourthly in payment of the residue (if any) to the mortgagor...

There is no evidence before the Court that Mr Brunner is in default, although he may well be, or that Mr Kellam has served any notice in accordance with s 77 of the TLA.

The Court has a widely expressed power to order the sale of land under Order 55 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic). Rule 55.02 provides as follows:

Power to order sale
In any proceeding relating to land, where it is necessary or expedient for the purposes of the proceeding, the Court at any stage of the proceeding –
(a) may order that the whole or any part of the land be sold; and
(b)may further order that any party in receipt of the rents or profits of the land or otherwise in possession of the land deliver possession to such person as the Court directs.

I am satisfied, based upon the evidence of Mr Roberts and Mr McNab, that the notice requirements in r 55.03 have been complied with, in that all of the secured creditors are aware of Roberts Gray’s application seeking that the Court order that the land be sold. At this stage, I do not propose to give directions as to the manner in which the sale should take place pursuant to r 55.04. In particular, given the nature and the location of the land, I will not prescribe that the land be sold by public auction, but will give the trustee, the parties, and TL Rentals liberty to apply in the event that such directions are needed.

Accordingly, I propose to make the following orders:

(a) the plaintiff has leave to amend the grounds of claim in caveat number AR404472L lodged on 30 August 2018 by deleting the following parties:

(xi) JB & F Investments Pty Ltd;

(xii) JB & F Investments Pty Ltd; and

(xiii) Vesterdix Group Holdings Pty Ltd;

(b) the Court declares that the third defendant is subrogated to the rights of the fourth defendant under mortgage dealing no. AN734016G registered over the title of the land;

(c) pursuant to s 103(a) of the TLA, subject to the third defendant producing to the second defendant the discharge of mortgage executed by the fourth defendant, the second defendant is directed to register the third defendant's unregistered mortgage dealing no. AR742544Y over the title of the land;

(d) the Court declares that the first defendant has charged the real property described in Certificate of Title Volume 11641 Folio 381 pursuant to a written agreement between the plaintiff and the first defendant dated 5 July 2018 with due payment to the plaintiff of any amounts owing to the plaintiff by the first defendant for professional fees and disbursements for legal services, including statutory interest and costs;

(e) the Court orders that there be a sale pursuant to r 55.02 and in accordance with the following orders, of the land;

(i) Mr Stirling Lindley Horne of level 12, 440 Collins Street, Melbourne, be appointed as receiver and trustee for the sale of the land (‘trustee’);

(ii) the land immediately vest in the trustee upon the making of these orders if it has not already;

(iii) the trustee conduct and complete the sale of the land in accordance with these orders and convey the land upon completion of the sale;

(iv) the first and/or third defendants, to the extent to which any of them is in possession of the land, are to give vacant possession of the land to the trustee within thirty days after the date of these orders;

(v) the first and/or third defendants must:

(A)deliver to the trustee the Certificates of Title for the land which are in their possession or under their control, within three business days after the date of these orders; and
(B)within seven days after being requested in writing by the trustee by email deliver to the trustee any other documents in their possession or under their control relating to the land that are reasonably required by the trustee to conduct or complete the sale of the land.

(vi) the trustee is to take all reasonably necessary steps required (including but not limited to, appointing a real estate agent and/or auctioneer) to sell the land; and

(vii) the trustee shall, on settlement of the sale of the land, apply the net proceeds of the sale in payment:

(A)first, of the proper and reasonable cost and expenses incurred in relation to the sale of the land;
(B)then, to the third defendant, of any amount paid by him in discharge of the fourth defendant's registered mortgage AN734016G;
(C)then, to any other secured creditor in respect of the land in discharge of their security in order of priority in accordance with the reasons published this day; and
(D)of any remaining balance to the trustee of the bankrupt estate of the first defendant.

I shall seek further submissions from the parties regarding the applicable interest rate for Mr Kellam’s subrogated interest in the land, and on the question of costs.

[2021] VSC 76

9 March 2021